Maximize Your Category Bonuses using Gift Cards

  Credit Card Reference

Some credit cards offer 5% (or even higher) reward rates on certain purchases. For example, the Chase Ink Card earns 5x Ultimate Rewards points for all purchases at office supply stores, the Chase Freedom Card earns 5x Ultimate Rewards points on a set of rotating categories, and the American Express Blue Preferred Card earns 6% cash back at supermarkets.

While it would be nice, if there were credit cards that earned 5% rewards for every type of purchase, there simply aren’t. You are stuck with earning bonus rewards that are closer to 3-4% for many purchases and with your base reward earning rate on many others. However, …

You can buy gift cards at stores where you earn high bonus category reward rates and then use them to make a purchase where you would normally get a lower rate. You are effectively converting the purchase into a higher reward rate category.

For example, if you bought $200 worth of clothes with a 2% general purpose reward card, you'd earn $4 in rewards. But if you bought it with a $200 gift card that you purchased at a grocery store with your Amex Blue Preferred Card, you'd earn $12 for the same purchase.

The gift card trick

• Many stores, such as supermarkets, office supply stores, and even gas stations, sell gift cards that can be used elsewhere—at Amazon, iTunes, restaurants, BestBuy, Starbucks, even at hotels and airlines.  It is even possible to buy Visa and Amex-branded gift cards that you can use anywhere, but you'll need to pay extra fees for those.

• When you buy these cards, you’ll earn the reward rate for the store you bought them at. For example, if you have the Amex Blue Preferred Card, you’ll earn 6% rewards when you buy Amazon cards at your local supermarket. There are good credit card options for buying gift cards at supermarkets, office supply stores, hardware stores, Amazon.com, and gas stations.
• Of course, this comes at a cost. It is simpler to just go into a store, or go online, and buy stuff with your credit card, instead of stockpiling gift cards, making sure to bring them to the store, and redeeming them when you check out. In addition, you’ll need to pay money ahead-of-time for things that you won’t be buying until later.  And if you need to use the Visa or Amex-branded gift cards, rather than gift cards that are tied to a specific merchant, you’ll usually have to pay an extra fee to buy the card.
• On the other hand, it is sometimes possible to buy merchant gift cards at a discount, giving you even more value than just the extra points you made on the purchase.

Tips for earning higher rewards via gift cards

• Make sure to buy gift cards that you will actually use. Maximizing your reward points is a good thing, but spending real money buying a stack of gift cards that sit around in a drawer is not.
• If you shop at Amazon or other online stores, their gift cards are easy to redeem. Often you can just enter the gift card codes immediately after you purchase the cards and your account balance will be automatically applied to any purchase you make later.  You don’t have to worry about holding onto the physical cards and retrieving them when you need them.  And you won’t slow down the checkout line at the store.

• You can buy "universal" Visa and Mastercard gift cards, but they come with extra fees. Unlike gift cards that are limited to specific merchants, general purpose gift cards have an activation fee. Fees are extremely high on smaller denomination cards, but can drop to as little as .75 - 1.5% when you buy cards with a $500 balance. This makes them less profitable, but more flexible, than buying Amazon or other merchant cards.

At some point, you won't be able to easily take advantage of merchant gift cards. Once you've purchased enough gift cards that all of your natural purchases at the available retailers are being made with gift cards, rather than credit cards, you don't want to be stockpiling any additional merchant gift cards. If you can still earn high rewards for your purchases, you can shift to Visa / Mastercard Gift cards. You'll pay higher fees, but you can use these cards for at almost any merchant.

• Gift cards sometimes go on sale. This especially happens during the Christmas purchasing season. This can be a great time to stock up on cards that you can use throughout the year.
• Buying gift cards at office supply stores is often the most effective approach, assuming you are comfortable doing it on a business card. The Chase Ink Cash Card give you 5x Ultimate Rewards points, valued at 8.5 cents per dollar, at Office supply stores. You may be eligible to get a business card and comfortable with using it, or you may not. For a more in-depth discussion see our Unlock Extra Reward Points with Business Credit Cards.
• Supermarkets are another good place to take advantage of this strategy. With the American Express EveryDay Preferred Card, you can earn up to 4.5x Membership Rewards, valued at 6.75 cents per dollar and with the Amex Blue Preferred Card you can earn 6% cash back.  The only problem is that both cards cap your bonus spending at $6,000 per year and you’ll probably be using some of that for your actual groceries. If you are generating a lot of spending, you can get the Amex Gold Card which earns 4x Membership Rewards, valued at 6, on up to $25,000 of grocery store spending (plus the same rate on any amount of restaurant spending). Best Credit Cards for Grocery Spending.
• The Chase Freedom and Discover It cards often include categories that sell gift cards, such as home improvement stores. This can be an excellent way to earn great rewards on additional spending, maxing out the quarterly spending limits. Earn 5-10% in Rewards with Rotating Category Cards.
• Be careful with American Express cards. They don't allow gift card purchases to be used to meet the minimum spending requirements to earn signup bonuses. In addition, most of their interesting cards also include terms that exclude the ability to earn any reward points on gift card purchases at any time. These terms are not currently being enforced (except for signup bonuses and purchases from Simon Malls), but Amex may start enforcing them at any time. If they do, they could conceivably take back points that already posted to your account.

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