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Shelley Hunter

Can I Overdraft a Visa® Gift Card?

In most cases, you cannot overdraft a Visa gift card, but read these exceptions to find out for sure.

photo credit: LendingMemo via photopincc

Unlike a debit card linked to a checking account that can be overdrawn or a credit card with a credit limit that can be overcharged, a Visa gift card is linked to an account with a finite limit. When the dollar value is used, the gift card is void. However, reloadable gift cards or reloadable prepaid cards may have different rules, so let’s get specific.

Which Type of Card do you Have?

First of all, there are different types of payment cards. All cards are linked to a bank account (or a store account) of some sort. When a gift card or egift card is activated, money is held in that account and the recipient must use the associated gift card in order to access the funds. A debit card is typically linked to a checking or savings account. While some banks will allow a transaction to process that is greater than the balance of the account (e.g. cash a check for $100 when the balance is only $80), these banks will also likely charge an overdraft fee when it happens. Credit cards are similar in that banks will often allow charges that exceed the credit limit, but will also tack on fees for doing so. The mystery here is the prepaid card. Can that card be overdrawn?

Single-use Cards Cannot be Overdrawn

A prepaid card, often bearing the name and logo of a network such as Visa, Mastercard®, American Express┬« or Discover┬«, is similar to a gift card in that funds are paid in advance and used later. The money in the account can only be accessed via the card or ecard linked to it. A general-use prepaid card falls under the rules of the Credit CARD Act provided the card is marketed as a gift.

If the Visa prepaid card is designated as one-time use, then the card cannot be overdrawn. In fact, a transaction greater than the dollar value of the card will decline. If this happens when using the gift card at a store, simply ask the cashier to run a split-tender transaction–a fancy term that means paying the bill with more than one method of payment. For example, you might use the balance of a gift card first, then pay the rest of the bill with cash. If this happens online, however, the transaction will be denied because most website shopping carts do not have the ability to split payment between a bank-issued gift card and another card. In short, single-use prepaid cards cannot be overdrawn regardless of where you try to use them.

Read more tips on how to use a Visa gift card.

Reloadable Prepaid Cards Can be Overdrawn by Fees

Reloadable prepaid Visa cards might look like their single-use sisters, but value can be added to the card after the initial activation. Some consumers opt to use these cards as an alternative to having bank accounts or to avoid the financial risks of using credit cards. In other cases, people are required to use these cards in order to obtain welfare payments, child support payments, supplemental food assistance, unemployment payments and so forth. Value can typically be added to these cards in a single transaction (customer goes to a service center or adds value online) or through recurring payments such as a direct deposit of wages from an employer.

Depending on the issuer, a reloadable prepaid card could be charged a number of fees including activation fees, reload fees, ATM withdrawal fees and even decline fees. When you attempt to make a purchase with a prepaid card that does not have the funds to cover the transaction, you could be charged a decline fee. So not only will your transaction be denied, but you’ll pay for attempting to make the purchase in the first place. If this action results in a negative balance, your next reload will have to cover it–unless the terms and conditions of the card state there are other consequences.

In most cases, even reloadable prepaid Visa cards cannot be overdrawn (unless fees create a negative balance), but you should always check the terms and conditions of your card to know for sure. Though prepaid cards are useful for many reasons, excessive fees could outweigh the benefits. It’s better to know what will happen ahead of time.

Let me know if you have other gift card questions. You can leave a note in the comments or reach me at @GCGirlfriend on Twitter.

Happy Gift Carding!

~Shelley Hunter, Gift Card Girlfriend

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