When category bonuses trump fees

Now that CVS has stopped allowing credit card purchases of reload cards, many have turned to buying Visa and MasterCard gift cards.  These gift cards are special because they are also debit cards.  They allow customers to set PINs to be used for certain transactions (see “Gift card PINs”).  One common approach is to use these cards to pay bills that can’t ordinarily be paid via credit card.  This can be done online with Evolve Money, or in person at stores that offer bill payment services and allow payment via debit card.  If all else fails, you may be able to find a store that will let you buy money orders with debit cards. 

The purpose of all of this, of course, is to earn credit card rewards.  By buying and liquidating gift cards, you can increase spend on your rewards earning credit card in order to meet minimum spend thresholds, achieve big-spend bonuses, or simply earn normal spend-based rewards.  Its very important to make sure that the fees involved in these transactions are significantly less than the value of the rewards earned.  Otherwise, you would have gone through a lot of work for nothing.

Cost Per Point

If one were to use a free service like Evolve Money to pay bills that couldn’t otherwise be paid by credit card, then the cost per point for buying and using gift cards can be determined by taking the number of points earned and dividing by the gift card purchase fees.  The number of points earned when buying gift cards depends on your card’s usual earning rate as well as any category bonuses (e.g. “5X office supplies”) or spend bonuses your card offers.  The following table shows a number of widely available gift card values and fees along with the cost per point assuming you pay with a card that earns 1, 2, 3, or 5 points per dollar:

Card Value Fee 1X Cents Per Point 2X Cents Per Point 3X Cents Per Point 5X Cents Per Point
$500 $5.95 1.18 0.59 0.39 0.24
$500 $4.95 0.98 0.49 0.33 0.20
$500 $2.95 0.59 0.29 0.20 0.12
$200 $6.95 3.36 1.68 1.12 0.67
$200 *$4.88 2.36 1.18 0.79 0.47
$100 $5.95 5.62 2.81 1.87 1.12
$100 **$0.53 0.50 0.25 0.17 0.10

The cells shaded green, above, show situations where you would be buying points for less than half a cent each.  The yellow cells represent buying points between half a cent and 1 cent each.  And, the red cells represent costs above 1 cent per point.  Two of the fees listed above require explanation:

* $4.88 for $200 gift card: This fee assumes the purchaser uses a Visa business card enrolled in the Visa Savings Edge program at Staples in order to get 1% back.  The in-store fee is $6.95, but after the $2.07 rebate, the total fee comes to $4.88.

** $0.53 for $100 gift card: This fee assumes the purchaser goes through a 5% cash back portal to Staples.com, buys at least two $100 Visa gift cards (each with a $6.95 fee), and pays with a Visa business card enrolled in the Visa Savings Edge program. 

No Fee options

Sometimes it is possible to find gift cards available with no fee whatsoever.  This makes it theoretically possible to buy credit card rewards for free.  Obviously that’s a better deal than paying even 1/10th of a cent per point.  Right?  Not so fast…

When fees trump free

Some rewards programs allow you to convert points directly to cash either as a check or as a statement credit.  The best example I can think of is Chase’s Ultimate Rewards program.  If you’re not interested in using your points for more lucrative travel options, you can always redeem points for cash at a rate of 1 cent per point.  So, if you earn points when buying gift cards, you can opt to use those points to pay yourself back for the gift card fees.  While that may not be the best use of your points, it illustrates a situation where paying fees can trump buying fee-free gift cards.  Specifically, this will be true when you can earn significantly more rewards for the gift card with the fee.  For example, perhaps you can get a fee free gift card at a store where you earn only 1 point per dollar, but you can get 5 points per dollar at a store with a fee.  With the latter option, by using points to pay back the fee, you can still earn points for free, but you may earn many more points.

The following table shows the points earned per dollar after paying yourself back for gift card fees at a rate of 1 cent per point.  This table only makes sense with rewards programs where points are truly worth 1 cent (or more) each.  The cells show the number of points per dollar earned by each method after subtracting out the points used to pay for the fees.  For example, if you use a 5X earning card (such as a Chase Ink card) to buy multiple $100 Visa gift cards at Staples.com (after enrolling in Visa Savings Edge and going through a 5% cash back portal), you’ll earn 5X points based on the initial $106.95 per card fee, but after using points to pay back the final $0.53 per card fee, you’ll still profit by 482 points per $100 card, which is equivalent to 4.82 points per dollar.

Card Value Fee Orig 1X Orig 2X Orig 3X Orig 5X
$500 $5.95 (0.18) 0.83 1.85 3.87
$500 $4.95 0.02 1.03 2.04 4.06
$500 $2.95 0.42 1.42 2.43 4.44
$200 $6.95 (2.44) (1.41) (0.37) 1.70
$200 $4.88 (1.41) (0.37) 0.66 2.73
$100 $5.95 (4.89) (3.83) (2.77) (0.65)
$100 $0.53 0.54 1.61 2.68 4.82

Take a look at the “Orig 5X” column.  The values in that column represent the points per dollar earned after buying gift cards with a 5X earning card and using points to reimburse yourself for the fees.  In all cases, but one, you’ll earn more than 1 point per dollar after paying yourself back for the card fee.  And, in all cases but two, you’ll earn more than 2 points per dollar.  This means that earning 5X valuable points (such as Ultimate Rewards) is usually better than earning 1X or even 2X fee-free points.  In fact, you can do better even than 4X fee free points with three out of the seven examples above!

Before you ask, no I don’t know of any places (anymore) where you can get 5X Ultimate Rewards points per dollar when buying $500 Visa gift cards.  Occasionally, the Chase Freedom card offers a 5X category bonus at gas stations, though, so that is sometimes a possibility if you have a friendly gift card selling gas station nearby.  Another option, of course, is to find other cards that offer 5X at useful stores (see “Playing 5X everywhere Whack a Mole”).  With Chase Ink cards, the best current options are to buy $200 gift cards at Staples in-store, or $100 gift cards online (see “Staples Rocks”).

Wrap up

While its always a good idea to avoid fees, its often worth paying fees if it means earning significantly more rewards.  You do need to consider the value of your time as well, though.  The table above shows that buying $100 Visa gift cards online may be the best option of all for earning points, but its also the worst option of all with regards to convenience.  Unlike cards bought in-store, cards sent by mail have to be activated one by one (using activation codes that are sent separately).  And, then, you’ll have to do twice as much work to liquidate these cards compared to $200 cards, or five times the work compared to $500 cards.  For example, I recently used 17 $100 Visa gift cards to make a mortgage payment through Evolve Money (I had to use multiple accounts due to Evolve’s $1000 per day limit).  After painstakingly activating each card, I then made the payments. For each payment I had to enter in my name, address, and card number, and then I had to wait 5 minutes before doing the next one to avoid receiving a “duplicate payment” error.  This was a lot of work!  To me, it was worth it to get 5X rewards and to help meet the minimum spend requirement on my wife’s new Ink card, but I expect that many others will have a lower tolerance for this.  It’s perfectly fine to earn fewer rewards in exchange for less hassle!

About Greg The Frequent Miler

Greg is the owner, founder, and primary author of the Frequent Miler. He earns millions of points and miles each year, mostly without flying, and dedicates this blog to teaching others how to do the same.

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45 Comments on "When category bonuses trump fees"

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Victor
Guest

Great analysis… I was just going through a similar calculation myself to figure out what’s the best MO for me now that VR is out. Even the shape letter gas stations in my area stopped allowing CC purchase recently. Btw, which GC offers 500 for a 2.95 fee?

ABC
Guest

The renewed focus on VGCs and WM from several bloggers have greatly reduced the halflife for these kinds of opportunities. I suggest taking responsibility for how often the “word” gets out. In the last few days MMS, VFTW etc have mentioned this. Spread the posts out over time. No need to bring too much attention in a short time Interval. Never before has it been this obvious that the masses are getting in on this in my area. And they bring unnecessary attention to this activity.

Ced
Guest

@FM: which of these gift cards can be liquidated via Serve (online load, as debit card)? I have tried the $200 Visa GC (yellow package), the $200 MC (yellow/brown/green package) and amex gift cards (gold). None of these work, and the reps at Serve knew it was prepaid hence a no-go, neither as credit or debit. I believe I read somewhere that some had success that way…do you know how? (I know about Walmart — really mean online load) thanks!

Should I get another credit card?
Guest

Thanks for this clear analysis. I have yet to find a gas station that will help with manufactured spend, so I guess UR and Staples will be my new best option…for now.

Ced
Guest

btw, the way I do the math on these is a bit different. Assume $200 visa gc with $6.95 fee at Staples.

You earn 5 x 206.95 = 1034.75 UR points. But you DO forfeit 200 of these when buying anything (non bonused), since you will need to liquidate that gc somehow. Hence your net cost is 6.95 for 1034.75-200 = 834.75 which are the UR you BOUGHT at 6.95, i.e. a 695/834.75 = 83 cents per mile price which is great for UR since they are at least worth 125 cents when redeemed for travel.

Taking the analysis further if you use the gc in place of 2x bonused spend, you forfeited 400 points hence you bought 1034.75 – 400 = 634.75 at a price of 6.95/634.75 = 1.09 cent per UR. That means Chase Ink Bold/Plus are superior to Sapphire for anything 1x and even 2x, the only caveat being the limitation of $50,000 per year and the customer protection you lose when buying stuff with gc.

John
Guest

@Ced – You don’t need to take the 200 forfeited points into account if you liquidate these via BB.

Clint
Guest

@FM – What is the $500/$2.95 option? I’m stumped on that one. I can still think of several post-VR $500/$3.95 options(assuming the store will allow CC).

Macro Polo
Guest

FIRST WORD: The principal villain in Harriet Beecher Stowe’s antislavery novel Uncle Tom’s Cabin. [FIRST NAME ONLY]

SECOND WORD: What a tiger does to its prey.

You’re welcome…

bexho2000
Guest

Marco Polo – Thought the 1st name was Simon…nor sure any cards start with that? Any other hints for us not that educated in literary works…much appreciated!

Mark
Guest

Think about your local malls…

bexho2000
Guest

Thanks Mark – Simon says…I got it!

Neel
Guest

Marco Polo,
Funny and still useful response. Loved it !

Chris
Guest

More importantly, how can you get a 5X multiplier for this opportunity? I don’t know of any…

Chris
Guest

I’m not following the math here…In the first table first cell, buying a $500 gc with a $5.95 fee is a 1.19 expense ratio, not 1.18. If you assume you get 1 point per dollar spent = 505.95 points = $5.06 in credit card rewards. That lowers your cost to .18%.

Similarly, for the bottom cell in the first column. 2 $100 gc, $13.9 fee. 5% from cb portal = $10. SavingsEdge at 1% = $2. CB rewards at 1X = $2. You’re making money at this point.

What am I missing? I feel like there’s something stupid I didn’t catch.

MarkD
Guest

FM – You can use the GoWallet iPhone/Android app to register and set pins for the Visa gift cards. It takes a little bit of the sting out of using so many cards. It will automatically update the balance on each card as well if you don’t use the full balance.

iwantmoremiles
Guest

Can you give a hint as to what the shape letter gas station is?

Glenn
Guest

@bexhi2000 or activate a Color Shape prepaid. Then cancel after emptying.

Carl P
Guest

@Macro Polo – There is one in Winchester, VA. When needing spend on Visa or MC I sometimes get the GC (Amex)there and use it at Costco rather than a regular Amex card.

Valerie
Guest

@marco polo-no need to guess. Just jump to mms post today and you’ll see the full description with pictures n all Oh, funny I used to like his (mms) post when I was a newbie but now starting to hate it!

Larry
Guest

Great article! Do you know if any of the bill pay services allow one to load funds via a Discover GC? I can get those for no fee and earn 1% cashback, but it seems most only allow Visa and MC.

JustSaying
Guest

Evolve doesn’t like all prepaid Visa’s……JH Preferred in specific……..and there is no Walmart to trek to even in a moment of weakness………I don’t se much light at the end of this tunnel……VR has me spoiled and I’m not going to spend every waking hour out of work chasing 500 miles………..Bluebird and AMEX have to be doing something to save the progeram, no?

HikerT
Guest

You say “the cost per point for buying and using gift cards can be determined by taking the number of points earned and dividing by the gift card purchase fees”. IMO this is a step backwards in educating your readers about the opportunity costs involved with MS. As you have shown before, it is important to compare to cash back equivalent payoffs that involve similar (or lesser) effort. When you do this cost of MS may increase substantially. But this is just one opportunity cost. If you focus on suboptimal opportunities you will also underestimate cost. You need to consider the cost of not fully taping capacity or the most efficient opportunities. For some, time constraints will dictate focusing on volume instead of fees. For others, capacity constraints might dictate focusing on fees.

Dave
Guest

Is this deal that much better than buying $200 Visas at office supply stores with Ink? Simon buys 1 point at 0.57c each, whereas the office supplies sells them at 0.68c. However, I feel I can scale up Staples easier than I can for Simon. I suppose $500 gift cards are easier to unload, but with Evolve, it doesn’t really matter anymore.

Am I missing something that others see with Simon? Unless there are category bonuses, it’s a good deal, but not a gamechanger, IMO. I don’t have the 2.2% card. Does anybody know how AMEX and Visa categorize this purchase?

hdawg
Guest

Which portal does 5x for staples when buying visa gift cards?

Chris
Guest

Check out cashbackmonitor.com

hdawg
Guest

will it still work for visa giftcards is my question.

JohnnieD
Guest

“Using 17 $100 GC’s at Evolve…” Ha! Try using 15 $100 GC’s at a WM kiosk…The line behind me was not happy. It got less happy when the kiosk locked up printing my last receipt…I walked quickly to the nearest exit……….

PhatMiles
Guest

Absolutely love this post. For pure manufacture spenders (like me) it is very important to consider the factors of time, fuel, running to Staples and Walmart etc should be considered seriously along with you analysis, which is spot on IMO. If you live in an area where Walmarts are not easily available it makes this a challenge. Yes I live in Mass.

Luda
Guest

Can you mention the cost per point on using the Hilton Surpass x 6 and club Carlson X 5 , thank you!!1

Marcus
Guest

Can you tell me which cashback portals you have had success with buying VGC at staples. I bought $200 worth on the discover portal with chase ink and have not seen a cashback on discover it card posted. I live in Texas and unfortunately they don’t have any Office Depot stores that give shop kicks so the only way of lowering the cost of fees is through portal route. Thanks again