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Should you pay for merchandise with reward points?

Summary

Card companies are offering more options than ever for redeeming points, but pay attention to the value

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Question

Dear Cashing In,
Whenever I buy something at Amazon.com, it gives me the option to pay with points from my American Express card. I like the option to pay with points instead of a regular charge on my card, but is this a good idea? — Jeffrey

AnswerDear Jeffrey,
You can expect to see a lot more of these opportunities to use credit card rewards. Card issuers love touting the many different ways that you can redeem points.

It all sounds really good, right? Who wouldn’t want a flexible rewards program that offers reward points that can be redeemed for many different items? If you look at the websites of the major credit card reward programs, they tend to tout many different redemption options, such as travel, gift cards, statement credits and merchandise.

Now, card companies are increasingly developing partnerships that allow you to pay with points even on other companies’ websites. That makes the process of using points to pay for purchases so much easier and more convenient.

In the case of Amazon, for instance, the site recognizes from your card number that your American Express card has Membership Rewards on it and tells you before you buy that redeeming points is an option.

Having more options is great. However, you should know that as with other merchandise purchased with reward points, the value you are receiving for your points tends to be poor.

For instance, with American Express and Amazon, each point is worth 7/10 of a cent. That means that a bright orange T-shirt I found on Amazon for $18.49 would cost me 2,641 points.

Other merchants offer similar redemption rates.

Using American Express points on Uber? They are worth 1 cent per point.

Heading to a concert? You can buy from Ticketmaster using American Express points that are worth half a cent each.

Are those rates — 1 cent per point or less — a good value? As always, the answer depends on what your other options are. However, there are better values for other redemptions. I try to avoid redeeming points for such meager rewards when there are better options available.

For instance, if you transfer the points to an airline partner’s frequent flier program, you can often buy the equivalent of a $500 ticket for 25,000 miles — or 2 cents per point — though you will probably have to contend with the headache of award flight availability. Using points this way makes them twice as valuable as redeeming with Uber and four times as valuable as redeeming with Ticketmaster.

Also keep in mind that there are cards available with no annual fees that can give you 1.5 percent or 2 percent back on every purchase, so it might not make sense to opt for a reward that offers you less than that.

Of course, if you have received a lot of your points from sign-up bonuses, they have come to you at virtually no cost, so you are coming out ahead no matter how you redeem the points.

In addition, if you don’t take trips on planes or you have more points than you think you will be able to spend, then redeeming with one of these merchants can make some sense.

Generally, though, there are other ways to reap more value. Calculate just how much value you are receiving before pulling the trigger and spending your points.

See related:Getting started with rewards cards, Some cards generous for travel, give less in cash back rewards

 

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Published: February 16, 2016

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Credit Card Rate Report Updated: November 6th, 2019
Business
15.14%
Airline
17.01%
Cash Back
17.19%
Reward
17.03%
Student
17.23%

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