Credit card purchase perks and how they apply when using gift cards

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One of the best ways to increase point earnings or cash back when buying merchandise is to double dip: first get the most points or cash back possible from buying the merchant’s gift cards, then get the most points or cash back possible when using the merchant’s gift cards to buy things.  For background on getting points & cash back from buying gift cards, please see: “Best options for buying merchant gift cards.”  And, for a few examples of double dipping, please see:

The downside

The downside of using gift cards to buy merchandise is that you forfeit the purchase protections often automatically offered by credit cards.  These include: purchase protection, return protection, extended warranty, and price protection.  It’s a good idea to weigh the value of these benefits against the value of extra points earned when considering a gift card double dip.

What if I put 1 cent on my credit card?

I’m often asked whether you’ll get purchase protections if you make most of a purchase with gift cards and pay a small amount with your credit card.  Would that result in extended warranties and other benefits?

I did some research on this over the weekend.  As expected, most credit cards’ benefits guides explicitly say that a purchase must be made entirely with your credit card for the benefit to apply.  There were a few exceptions though…

Chase Ink, Freedom, and Sapphire

Recently, Chase updated the Chase Ink Plus, Ink Bold, Sapphire, Sapphire Preferred, and Freedom benefits guides (they may have updated others as well, but these are the ones I’m aware of).  In the old benefits guides, the purchase perks were explicitly limited to purchases made entirely with your card.  In the new guides, though, they explicitly say that you must “charge some portion of the item’s purchase price to your Account or use reward points earned on your Account toward the purchase.”  This new language is present for all four types of purchase perks: purchase protection, return protection, extended warranty, and price protection.  This is great news right?  Well, it’s good, but not necessarily as great as it sounds.  I’ll discuss below how this applies to each perk individually.  First, though, let’s look at other cards…

American Express

I checked the benefits guides of a few American Express cards and found mixed results.  Purchase Protection applies when any portion of the purchase is made with your card.  Return protection, though, which only applies to select American Express cards, only applies when the purchase is made entirely with your card.  The extended warranty is less clear about whether it applies to partial purchases, but I think it does.  And, finally, American Express no longer offers price protection so that doesn’t apply either way.

Other cards

I looked up the benefits of a number of other cards.  All of the following require the entire purchase to be made with your card for benefits to apply:

  • Chase United MileagePlus
  • Chase Priority Club Visa
  • Chase Marriott Rewards Premier
  • Chase British Airways
  • Discover It
  • Capital One Visa
  • Barclaycard US Airways
  • Citi ThankYou Preferred (including “Price Rewind”)
  • Citi ThankYou Premier (including “Price Rewind”)

Does it matter?

Even when Chase and American Express say that you’re covered when you charge some portion of a purchase to your credit card, that doesn’t mean you’re fully covered.  In each case, they also say that “you will only be reimbursed up to the amount charged to your Account or the program limit, whichever is less.”  Let’s look at each perk and see what that means:

Purchase Protection: This benefit typically covers accidental damage, theft, or loss of the item you purchased. The Ink Bold and Ink Plus cards cover up to $10K per item for up to 120 days after purchase.  The Sapphire and Freedom cards covers up to $500 per item up to 120 days after purchase.  If you put just a small percentage of the items cost on your credit card, then that is the maximum reimbursement you can get if something bad does happen.

Return Protection: This protection applies when you buy something and want to return it, but the merchant you bought from won’t accept the return.  The Ink Bold, Ink Plus, and Sapphire cards cover up to $500 per item for 90 days after purchase.  The Freedom card covers up to $250 per item, also for 90 days.  If you put just a small percentage of the item’s cost on your credit card, then that is the maximum reimbursement you can get if you use return protection.

Extended Warranty:  Most credit cards offer to extend warranties for an additional year beyond any automatic store or manufacturer warranties.  If you put just a small percentage of the items cost on your credit card, then that is the maximum reimbursement you can get if you file a claim.

Price Protection:  This benefit applies when an item you recently purchased drops in price.  With the Chase Ink, Sapphire, and Freedom cards, you are covered for 90 days as long as you paid partially with your card.  This is the one protection where I see a big potential benefit to this partial coverage.  Let’s say you think the purchase price of an item may drop by up to 20% in the next 3 months after purchase.  In that case, assuming I’ve read the benefits guide accurately, if you pay 20% of the total with your Ink Plus, Ink Bold, Sapphire, or Freedom card, you should be fully covered for that drop in price.  In fact, I recently bought some furniture this way.  Crate & Barrel frequently has 15% off furniture sales, but I wanted to buy immediately, so I put a little over 15% on my Freedom card and paid the rest with gift cards.  If they hold another 15% off sale within the next 90 days, I’ll have the opportunity to test this partial coverage!

Pondering options

Most credit card purchase perks exclude shipping and handling (and probably sales tax) from the allowed amount of any reimbursement.  So, when using a card that offers partial coverage when paying partially with a gift card, I think that it can’t hurt to pay for at least those things (shipping & handling, and sales tax) with a gift card.  Another approach that would most likely work is to purchase multiple items at once and use a credit card to pay for just the most expensive of the items.  For example, suppose you buy three items at once, two for $300 each and one for $400.  If you pay $400 of the total with your Ink Plus, Ink Bold, or Freedom credit card, but pay the rest with gift cards, then I think you basically have full coverage.  As long as you don’t ever file a claim for more than one of the three items, you should be OK.  Of course, this is just my read of it right now.  I haven’t tested this theory.

Bottom line

Credit card purchase perks usually only apply when you pay 100% with your credit card.  With some cards, though, you are covered even when you pay partially with your card.  In that case, your coverage is only up to the amount you paid with your card.  As I discussed above, Price Protection is one area where partial coverage may be good enough.  With other protections, you could try the approach of paying just for the most expensive item on your receipt with a credit card and pay for the rest with gift cards (see “Pondering options,” above).  Otherwise, it is necessary to balance the piece of mind you get from having the protection vs. the points given up if you pay by credit card rather than by gift card.  Personally, I usually opt for the points because I’m willing to bet that I won’t ever want to file a claim.  In rare cases, though, it may be worth giving up a few points to get the extra protection.

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