How to Earn More Credit Card Rewards Without Spending More: Gift Card Arbitrage
For the experienced point and rewards chasers, this “tip” is hardly new, as the basic idea itself is simple–to maximize your point earning potential, you’ll want to spend more at places that offer the highest rebate percentage. But how can we do this without actually spending more money? One easy answer: Buy prepaid cards and gift cards to manipulate your spending so that it falls into a high rebate bonus category.
For example, the American Express Blue Cash Preferred card pays a juicy 6% cash back at stand-alone supermarkets. Chances are that your local grocery store stocks a wide variety of retail branded gift cards (such as Amazon.com gift cards). Ordinarily, you might only earn a 1% rebate on Amazon.com purchases, but if you buy an Amazon.com gift card at your supermarket with the Blue Cash Preferred card, you’ll earn 6% cash back on that gift card purchase. With one extra step, you’ve turned a 1% transaction into one that nets 6%.
Purchasing gift cards can also have a potential side benefit of pulling your spending forward, which can be useful if you have a limited time to meet a minimum spend requirement on a card.
Purchasing Prepaid cards
A more flexible option than purchasing retail branded gift cards that can only be used at specific merchants is to buy prepaid Visa, MasterCard or Amex gift cards. These cards can typically be used anywhere that debit cards are accepted. You do pay a fee for that flexibility, but if your cash back rebate is high enough, it can be enough to more than offset that cost.
For instance, if you can find a supermarket that sells variable load cards (cards that can be loaded with amounts ranging from $25 to $500) with a loading fee of $6-7, it can be profitable to buy those cards with a card such as the Blue Cash Preferred (6% rebate) or the Blue Cash Everyday (3% stand-alone supermarket rebate). On a $500 gift card with a $6 fee, you would net $24 ($500 * 0.06 = $30 – $6 fee = $24), which is $19 more than you would have received if you made the purchase in a 1% category.
Since supermarkets aren’t the only places that sell these types of prepaid cards, there are other credit cards that can take advantage of this as well. The Chase Ink Bold for Business card earns 5 points per dollar at office supply stores, as well as on cable, cell and internet. Any office superstore such as Staples, OfficeMax or Office Depot sells $200 Visa gift cards with a $6.95 service fee. Even with the service fee, however, this turns out to be a nice value.
Breaking down the numbers: Your ordinary $200 purchase would earn 200 Ultimate Rewards points, while buying a $200 prepaid Visa card with the Ink Bold would cost you $206.95 and yield 206.95 * 5 = 1034.75 UR points, a difference of 834.75 points. In this scenario, you’re essentially buying an extra 834.75 points for $6.95 (or 0.83 cents per point), which is a darn good deal.
This method is not without its risks. For one thing, you are forfeiting the normal consumer protections that you get for using a credit card when you make a purchase with a gift card. For instance, if you’re buying major electronics, it’s still probably smarter to use your credit card directly so you can take advantage of the built-in warranty extension.
Also, when you have a physical gift card, you stand to lose the entire amount of your card if you happen to misplace it–losing your card is like losing cash. This can be mitigated somewhat if you are purchasing Amazon gift cards, which can be immediately credited to your account after you buy them.
Another pitfall of this strategy is that some credit card issuers don’t like to see too many obvious gift card purchases. If such activity catches their attention, it can potentially lead to adverse action, including denial of rewards or even freezing of your credit.
To a lesser extent, there’s also the “time value of money” to consider. If it will take you a long time to actually spend the money that you put on the gift card, you’re essentially giving the store merchant an interest-free loan for that period of time. You’ve also committed to spending money with that particular merchant, so it only makes sense to purchase store cards that you are certain you will be able to use.
Purchasing gift cards for later use certainly increases the hassle factor, so it’s definitely not for everyone. For those willing to put in the effort, however, it can be a useful way to boost your rewards point balance when used in moderation.