Rewards strategists are discovering new ways to multiply
points and miles fast using prepaid and reload cards. It's a bit like getting
rewards for a cash advance, then using the advance to pay large bills without
incurring convenience fees. In some instances you can even pay the bill for
your rewards credit card with your prepaid, indirectly earning rewards twice
for a purchase.
"It's stupid to not take advantage of this concept of buying
reloadable cards with your miles-earning credit card and then loading them onto
prepaid cards that you can then use throughout your daily life," says Brian
Kelly, who blogs at The
Points Guy. "Instead of just earning one or two points per dollar,
you can earn five points per dollar or more."
Here's how to do it:
Step 1: Open a reloadable
debit or prepaid card account
Prepaid cards are connected to payment-processing networks such as PayPal, American Express, Visa and MasterCard. You can fund these prepaid accounts
through your bank account or direct deposit, but if you want to maximize
rewards, fund them using a compatible reload card, also sometimes called a "pack."
Step 2: Purchase reload card -- using a rewards card Reload
cards can be found on the gift card racks in stores. You move the value of a reload
card or pack -- typically $20 to $500 -- to other financial instruments such as
prepaid cards or a PayPal account. An additional fee of $3.95 or $4.95 is
charged for each reload card you buy.
The trick is to pay for the reload cards with a credit card
that awards extra points for that type of purchase. Using a standard rewards card, you
will usually get only one point per dollar spent -- 500 points for a $500
reload card. Given that there's a fee of up to $4.95 for the reload card, you'd
be losing money and wasting effort doing that.
But using a credit card that gets more than one point per
dollar at the drug stores or office supply stores that sell reload cards makes
all the difference. For instance, Hilton's American Express card awards you six
points per dollar spent at drug stores. That means you could earn 3,005 points
buying a Green Dot MoneyPak reloadable card for $504.95 ($500 in funds, plus a
$4.95 fee) at Rite Aid or other drug stores that sell MoneyPak. Chase Freedom
and Citi Dividend are offering 5 percent cash back on drug store purchases through
Another option is to buy Vanilla reload cards (not to be
confused with Vanilla gift cards, which are something different). They work
well with Bluebird, the prepaid card that American Express launched in October
with Wal-Mart. Vanilla reload cards cost $3.95 each and you can load up to
$1,000 per day into a Bluebird account via vanillareload.com.
Step 3. Spend your
prepaid card and reload
You've now just essentially transformed your money from one
form (cash) into another (prepaid card), using your credit card to earn a nice
stash of rewards points on the transaction. To really earn big, you need to use
that prepaid on as many of your regular expenditures as is financially
worthwhile so that you can reload as often as possible. The reloading is where
you earn the points.
The beauty with some prepaids is that you can use them to
pay large, recurring bills such as rent, mortgage or car payments -- without a
fee. Usually, paying these types of bills with a credit card incurs fees from
the loan or utility company. But a Bluebird account, for example, comes with a
no-fee online bill-pay feature that sends a check to the payee. It's as if you were paying from a bank
Example: To see how quickly you can rack up points, consider buying Vanilla
cards at a drug or grocery store with a rewards card that offers bonuses in
those categories. Using a Hilton credit card, for example, gets you six points
per dollar -- or 3,024 reward points for a $503.95 Vanilla card. If you bought
four of those cards to make a $2,000 rent payment, you could earn 12,000
HHonors points -- nearly enough for a free night at a level-2 Hilton. The total
cost would be $19.80 in reload fees -- not bad, for people don't regularly earn
a lot of points through travel.
You can even pay your credit card bill with Bluebird -- meaning
that if you earned points when you paid for your purchases, you're earning
twice on each purchase.
Wildcard: fund a PayPal
account with MoneyPak
One other way to tap the reload/prepaid scenario for points
is to use a MoneyPak reloadable card to fund a PayPal account. This is appealing
because you can transfer money from your PayPal account to your checking
account. MoneyPak can also fund an American Express Serve account via moneypak.com.
(Serve is an online payment system similar to PayPal that allows users to
transfer money, withdraw money from ATMs and shop online or in stores.)
But there's a caveat. PayPal has been known to send warnings
to people who transfer funds into PayPal via MoneyPak and then right out again
into their checking accounts. PayPal makes its profit by charging fees on purchases
made from PayPal accounts. If you simply use the account as a money transfer vehicle,
PayPal will call you on it.
Just ask The Points Guy's Kelly. He was recently reprimanded
by PayPal after loading the maximum allowed MoneyPak funds ($4,000) into his PayPal
account, then immediately transferring it all to his checking account. He says
the PayPal route is probably better for people who actively use PayPal for
Follow the moving
Frequent flier bloggers have been obsessed with this game
ever since the Vanilla/Bluebird/rewards card trifecta was discovered by miles collectors
a few months ago. In fact, buying Vanilla cards at Office Depot with a Chase
Ink Bold card became so popular -- in a bad way -- that Office Depot stopped
carrying Vanilla cards. "It was mayhem," Kelly says. "There were fraud issues,
theft issues. I don't think Office Depot was making enough on this product to
justify the headache."
Kelly and Greg Davis-Kean, who blog at Frequent Miler, both
recommend CVS as the next best option, having purchased Vanilla cards
successfully using several different rewards cards. However, certain CVS stores
have stopped accepting credit cards for reload card purchases. As both
retailers and card issuers introduce new restrictions, Davis-Kean predicts:
"We're going to have a moving target with this strategy."
In fact, an inside-joke-filled video about the Vanilla/Bluebird strategy
as a Hitler war room parody is circulating.
Besides keeping up with changing rules, if you want to earn
points with reloads you have to be willing to drive to a store to buy cards,
then manually load an account in order to pay your bills. "I think you have to
be committed to buying at least $2,000 worth of reload cards a month to benefit
from this," Davis-Kean says. "If you're only getting $200 worth now and then, points
earned are not worth the effort."
Avoiding red flags
and fraud alerts
Even the most savvy mileage collectors are running into
roadblocks. Along with Kelly's warning from PayPal, one of his commenters was contacted by
the AmEx fraud department after trying to charge two $500 Vanilla cards from
CVS on his AmEx Hilton HHonors Surpass card. The second purchase was declined,
though he suspects the fact that he was making the charges while traveling may
have been a factor.
Some suspect American Express will introduce restrictions on
buying reload cards with credit cards. "Banks are not concerned with frequent
flier mile collectors," Kelly says. "They're concerned with money launderers --
drug dealers, terrorists -- who buy these cards. It cleans up the money when you
pay for these cards, turns them into credit and then back into cash."
Banks are not concerned with frequent
flier mile collectors. They're concerned with money launderers.
-- Brian Kelly
Blogger, The Points Guy
Kelly warns it's hard for companies to tell the drug dealers
from the mileage collectors. Red flags go up if you buy lots of reload cards
and turn them back into cash right away. "Credit card companies also know that
right before people declare bankruptcy, they max out their credit cards," he
While Kelly and other frequent flier bloggers tend to push
these strategies to the limit, most people won't run into trouble if they incorporate
this practice into active, normal use of their accounts. "If credit card
companies and retailers did not want people to earn points on these purchases,"
Kelly says, "they simply would not allow people to use credit cards to purchase
The game could get even more lucrative. Although rewards are
not offered on Bluebird yet, a loyalty program is being discussed. "Certainly,
we're very grounded in rewards products and might do something like that in the
future," says Laura Kelly, senior vice president of prepaid products at American
Express. "With a partner as significant as Wal-Mart, the road map for Bluebird
will be in continual evolution."
If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.
7 signs you need to cash in your rewards – now! – It can be tempting to stockpile reward points, envisioning a big vacation someday paid for with the trove of points you’ve gradually been accumulating. But the reality of miles and points is that they become less valuable with time ...
13 luxe airport lounges you can access with a credit card – Most airport lounges are open only to first- or business-class fliers, elite members of frequent-flier programs, or to those willing to pay up to $70 for a day pass. But there’s another way in: having the right credit card in your wallet ...
Did you like this story? Then sign up for CreditCards.com’s weekly e-newsletter for the latest news, advice, articles and tips. It's FREE. Once a week you will receive the top credit card industry news in your inbox. Sign up now!