What do second cousins, your child's babysitter and the neighbor two houses have in common? They are all difficult to find when the holiday season is over.
If you're struggling to find a suitable and affordable gift for someone in your life, you may be tempted to buy him a gift card. Conveniently, many credit card issuers offer gift cards for points, miles or cashback – but are the redemptions worthwhile? The answer is: it depends.
The redemption value of gift cards
The value you can get from gift card redemption depends on your credit card and the promotions offered by the card.
Last June, Chase Freedom granted a 10 percent discount on Ultimate Rewards redeemed for gift cards. This meant you could redeem 900 points instead of 1,000 points for a gift card with brands like iTunes and Hello Fresh.
In most cases, exchanging rewards for gift cards will notify you of the value of your points. In some cases, however, this is useful.
If your credit card publishes a promotional offer for gift card redemption, it may be in your best interest, Ted Rossman, a bank rate industry analyst, to redeem a gift card instead of cash or other redemption options.
Chase and Wells Fargo are currently highlighting limited-time promotional offers for redeeming gift cards with certain brands. Chase offers a 10 percent discount on Lowe and iTunes gift cards and a 5 percent discount on Target gift cards, while Wells Fargo, according to Rossman, offers a 10 percent discount on gift cards from Home Depot, Kohl’s and other providers.
"If you exchange 9,000 Ultimate Rewards points for a Lowe gift card worth $ 100, it makes more sense than redeeming $ 90 in cash (provided you use the Lowe card well)," says Rossman.
With many issuers, your premiums do not expire, but with some, a policy removes your profit in certain circumstances. Wells Fargo Go Far Rewards, for example, expire your rewards about five years after you earn them.
If you have rewards that are about to expire (possibly due to a lack of account activity or a policy like Wells Fargo's), it may make sense to redeem them for a little something like a gift card to prevent them from being completely deleted. As a bonus, gift cards distributed by card issuers under the Credit CARD Act of 2009 cannot expire for at least five years.
Should you close a card for any reason and accidentally leave rewards on the table, some cards offer a grace period within which you can use your rewards before they expire (in some cases around 60 days). Depending on how many rewards you have earned, your best bet may be to redeem some gift cards.
Value from card to card
Depending on the card you have, you can get more value by redeeming a gift card for cash.
Rossman recently signed up for the Citi Premier® Card and is aiming for a 60,000 point bonus (earned after spending $ 4,000 in the first three months). According to calculations by Rossman and Citi, the bonus is around $ 750 back for travel, $ 600 back for gift cards, and $ 300 back for money.
"My wife and I plan to buy furniture and we have no specific travel plans. We may now receive Pottery Barn gift certificates worth $ 600 more than an additional $ 150 for a hypothetical future trip," said Rossman.
Citi Premier Card information was collected independently by Bankrate.com. The card details have not been checked or approved by the card issuer.
The bottom line
Redeeming gift cards is usually not the best way to maximize hard earned credit card rewards. However, there are a few exceptions:
- Look for exhibitors who offer discounts on gift card redemptions by reading messages sent by exhibitors or scanning websites like Doctor Of Credit. These offers can make it more profitable for you to redeem a gift card for cashback.
- If your rewards are about to expire, you may only be able to redeem them for a gift card, depending on the number of rewards you saved and other circumstances.
- Some cards may offer higher value for redeeming gift cards than others. So check the fine print on their website.