Why Do Points And Miles People Buy So Many Gift Cards?

If you’re following other websites that talk about points and miles, you’ll often see articles about purchasing gift cards and you might wonder “Why?” What’s the purpose of using a credit card to buy gift cards?

Before we get started, know that the topic of gift cards is one that people who are really into the game will talk about endlessly. This is not that type of article. Nothing I’m going to include will make you think, “Should I do that?”  Still, there are a few basics you need to understand.

Types of gift cards

The first thing you need to know is the different types of gift cards. The first one is the gift card most people are familiar with, store gift cards. Most stores sell gift cards for themselves but stores will also sell cards for other merchants, otherwise called third-party gift cards, These are the cards for Amazon.com, Panera Bread, Olive Garden, AMC Theaters or any other card you might spend $15 – $250 when you want to give a gift to someone but don’t really want to put much time into thinking about what to buy.

The other gift card type is one with no requirement on where to spend it. This would be a Visa or American Express gift card where you just load on a cash value that can be spent anywhere the card is accepted. This is good when you really don’t know what to get someone but you don’t carry cash to put in an envelope. Since these cards aren’t locked to any merchant, the card company usually tacks on a fee of a few dollars to activate the card, so a $100 card will cost $103.99 to purchase ($100 + $3.99 activation fee)

The last type of card sometimes mentioned is a reloadable card. Those fall outside the scope of this article so I’m not going to talk about them.

Now that we know the types of cards, why would you go out and buy gift cards to use for yourself?

Maximize bonus categories

When you walk through the supermarket, you’ll walk past a wall of gift cards for every type of store imaginable. Restaurants, gas stations, department stores, online stores, hotels, airlines, and spa treatments all have gift cards available for purchase. While the primary purpose is for people looking for a quick gift, it’s also a way for people looking for extra credit card points to maximize their spending.

Say you need to get some new sneakers. No matter how much you usually spend on sneakers, you can get gift cards for Famous Footwear and Foot Locker at your local Publix.

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Now, you might only earn 1 to 2 points for purchases at either of these stores, but if you purchase a gift card with a card that maximizes spending at supermarkets, you can earn 4 or 5 points per dollar. You can also take advantage of any card that has rotating spending categories like the Chase Freedom card.

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You’re not limited to grocery stores. When you look, there are plenty of places where they sell gift cards. Drugstores, gas stations, home improvement stores and office supply stores all have large gift card racks. (I know you were waiting for that one.). Just find a card that pays a good bonus for that store and get a few cards for places you usually shop but don’t earn many points for your purchases.

Gift Card Sales

Some companies will often put their gift cards on sale. This may be through a website that sells gift cards like eBay or Gyft or right from their own website or stores. You’ll also see many specials around the holidays that will include a “Bonus” gift card with purchase. Any of these offers are instant money back for you and I’m always a fan of paying less. Just don’t spend money you either don’t have or buy gift cards for things you won’t use in a reasonable time. You don’t want to be sitting around a year later wondering when you’ll be going to Buffalo Wild Wings again.

Office supply stores

While most people think of a store like Staples or Office Depot as the place to pick up printer paper or toner, school supplies or office furniture. However, if you have a Chase Ink Cash Business card, they are your stores to purchase gift cards. That’s because all office supply store purchases earn 5% back on your first $25,000 of purchases every year. If you have another premium Chase card, like the Sapphire Preferred, you can transfer your Ink Cash balance to that card and your 5% cashback becomes 5 Ultimate Rewards per dollar. That’s an unmatched return in almost any category.

Visa and AMEX gift cards

While it’s easy to understand why you would purchase a third party or store gift card, the reason for buying Visa or AMEX gift cards gets a bit more complicated. We’re walking close to the world of “Manufactured Spending,” and that’s not my specialty. Instead of trying to explain it here, I’m going to pretend it doesn’t exist for the purpose of this article.

The reason you’d buy these gift cards is to earn more miles. Now, this doesn’t make much sense when the cost of a gift card and fees is worth more than the miles you’d get. Take the above example of paying $3.99 to activate a gift card of $100 and you’ll earn 5x points.

  • Cost of card $103.99
  • Out of pocket cost $3.99 (Card has $100 value)
  • 519 points earned (103.99 x 5)
  • Cost per point $0.0078 (0.78 cents per point)

So in this example, you’d be buying points for 0.78 cents each, which isn’t bad for Ultimate Rewards points but horrible for Hilton points. Even if you’re getting a decent value, there’s another problem with buying gift cards to get the points, scale.

You’ve only earned 519 points for your trouble and time and you now have also to spend a $100 gift card. Using gift cards for purchases are fine, but you don’t want to use them for anything you’d need to use warranty coverage or travel protections. If you use it where you could be earning points anyway, why did you go through all the trouble?

Now the math can get better when stores have specials where they’ll reduce or even eliminate the activation fee but what would you do with that much money tied up in gift cards? (Please remember, I’m ignoring Manufactured Spending here on purpose. It’s like the math you learned in school, only to discover it was all wrong two years later, the same thing.)

Meeting minimum spending requirements

The purchase of gift cards to meet the minimum spending requirements for a credit card sign up bonus used to be great advice. If you were only a few hundred dollars short, you could just get some cards for places you’ll spend the money anyway, like a gas station or supermarket. This is not so much the case anymore, thanks to the American Express RATs (Rewards Abuse Team).

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While I’m pretty sure it’s wasn’t because of people buying a $50 Chili’s gift card with their AMEX that the bank needed to put new rules into their card applications, we all have to live under the rules in place.

Purchases to meet the spend requirement do NOT include fees or interest charges, balance transfers, cash advances, purchases of traveler’s checks, purchases or reloading of prepaid cards, purchases of gift cards, person-to-person payments, or purchases of any cash equivalents.

You should still be able to buy a gift card here or there with your AMEX but don’t go buying thousands of dollars in cards to meet a spending requirement or you’ll end up with your bonus taken away and might even have your account shut down.

Personally, if I have a new AMEX card and meeting a spending requirement, I’ll avoid purchasing any type of gift card just to be safe.

Final Thoughts

I hope this gives you an idea of when it does and doesn’t make sense to use a credit card to purchase gift cards. Adding this tool to your toolbox can help you earn extra points for your everyday spending, which while not as exciting as racking up signup bonuses, is a dependable way to build up your points balances over months and years.

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This post first appeared on Your Mileage May Vary

Feature image courtesy of 401kcalculator.org

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