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Rack up extra reward points with gift cards

Summary

One way to maximize your card reward offers is to buy gift cards, but beware of how the card is coded so it counts toward the category bonus

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Question

Dear Cashing In,
A friend suggested I start buying gift cards as a way of getting more credit card rewards. But that seems sort of weird to me. Does that make any sense, or would I get in trouble? – Scott

AnswerDear Scott,
When we think of gift cards, we tend to think of birthdays and holidays. They are popular and easy gifts to give, and they have grown in popularity over the years. A 2016 survey by the National Retail Federation found that 56 percent of shoppers planned to give gift cards for the holidays. Gift cards for restaurants and department stores were the most popular.

But for people who are interested in building rewards, gift cards can be an important part of the strategy. It might seem weird to buy gift cards for yourself. If you do it the right way, though, you can give yourself the gift of additional points and miles. Treat yourself. Let’s examine how.

There are two main types of gift cards. There are cards for particular merchants, such as Starbucks, Best Buy, Sears and AMC Theatres. These are usually sold at face value, though you can sometimes get discounts. Then there are cards that are able to be used just about anywhere because they work on a Visa or Mastercard or American Express network. These usually cost $5-$7 above face value.

If you start paying attention, you will find that gift cards are available at all kinds of stores: warehouse clubs, gas stations, office stores, supermarkets, drugstores. Many of those places will allow you to buy merchant gift cards using a credit card. It’s much tougher to find a retailer that will allow you to buy a payment network gift card with a credit card.

Ordinarily, there’s no reason you should buy a $25 Starbucks gift card and hang onto it to use for your weekly latte. You could just buy the coffee on your credit card. With most cards, $25 of Starbucks coffee is worth 25 points. But where the gift cards can really add up is with taking advantage of category bonuses.

For instance, if you have a card that earns double points at supermarkets, and you shop at a supermarket that sells gift cards, that $25 Starbucks card will now earn you 50 points instead of the 25 points you would have earned if you had spent $25 at Starbucks.

It’s an even better strategy when if you have a card with high category bonuses. If, for exaple, you have a card that gives 5 percent back at office supply stores, and you found a Staples or Office Depot that let you use a credit card for that $25 gift card, that’s 125 points. Other cards award high bonus points in categories that rotate quarterly, so you need to watch not only where you buy, but when.

One important caveat is that not all stores will allow you to buy gift cards on credit, chiefly because of concerns about fraud and cost. Crooks who make fake credit cards with stolen data often try to convert them into gift cards. In addition, don’t overdo it. Your credit card issuer could become suspicious if you start charging thousands of dollars a month in gift card purchases.

But if you make buying gift cards a small part of your overall purchases, it can be a smart way to boost rewards. Nothing weird about that!

See related: Sizing up a credit card rewards scheme, What if you are a few points short of your plane ticket?

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