Maximizing Discover rewards: real value from merchant gift cards

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Finally found: Better value from Discover rewards.

This is the fourth post in a series in which I’ve analyzed options for maximizing Discover Card rewards.  With Discover cash back rewards, cardholders have the option of redeeming for partner gift certificates rather than cash.  Upon first glance, these certificates appear to be great deals, but when we look closer we find that some are not as good as they appear.

In each of the three prior posts, I was disappointed with what I found.  Deals that appeared at first to be too good to be true were in fact mediocre at best.  The Universal Orlando Resorts certificate, in particular, is a really terrible deal.  For more info, please see these prior posts:

 

Merchant Gift Cards

Mixed into the pile of “Partner Gift Cards” are savings certificates of dubious value like those I covered previously, and real gift cards with real value that can be used pretty much without restriction at the named merchant.

Discover offers a large selection of merchant gift cards, each with different savings associated with them.  For example, most restaurant gift cards cost $45 for a $50 gift card.  Retail gift cards (such as Sears, Staples, CVS, etc.) range more widely in cost and value.  One of the biggest discounts is Brookstone where you can get a $60 gift card for $40 in Discover rewards (a 33.3% discount).  With other merchants, $50 gift cards range in price from $40 to $45.

Whether these gift cards are good deals or not depends not just on the percent savings from face value, but also on how much you could have saved if you had bought the gift card elsewhere.  For example, if you use your Discover rewards to get a $50 gift card for $45, you haven’t really saved $5 if you could have bought the same gift card elsewhere for $45 or less.

To figure out if Discover offers any real deals, I picked an assortment of well known brands and compared the Discover savings to the savings I could get by buying the same gift cards at a discount via gift card resellers.  I used the site GiftCardGranny.com to determine the best resale price for each merchant’s gift card.  Note that resale prices fluctuate regularly, so this is just a point-in-time estimate.  I calculated “real savings” by taking the difference between the Discover card savings and GiftCardGranny savings.

My findings are shown in the table below.  The table is sorted with the best real savings at the top:

Merchant

Discover price / Card value

Savings %

Giftcard Granny Savings %

Real savings %

Brookstone $40 / $60 33.3% 15.9% 17.4%
Zappos $40 / $50 20% 5% 15%
Staples $20 / $25 20% 5.5% 14.5%
Bed Bath & Beyond $40 / $50 20% 7.2% 12.8%
Lands’ End $40 / $50 20% 9% 11%
Champs $40 / $50 20% 9% 11%
Foot Locker $40 / $50 20% 12% 8%
Panera $45 / $50 10% 4% 6%
Whole Foods $70 / $75 6.7% 2% 4.7%
Shell $70 / $75 6.7% 2% 4.7%
Chipotle $45 / $50 10% 6% 4%
Sears $45 / $50 10% 6% 4%
Lowe’s $45 / $50 10% 7.2% 2.8%
CVS $45 / $50 10% 7.3% 2.7%
Eddie Bauer $40 / $50 20% 19.9% 0.1%
Cheesecake Factory $45 / $50 10% 10% 0%
Macy’s $45 / $50 10% 11.1% -1.1%

 

Real Savings

As you can see in the table above, there are real savings to be had with some of these gift cards!  It’s possible to save as much as 17% over the cost of discounted gift cards. If you plan to shop anyway at Brookstone, Zappos, Staples, etc. you can stretch the value of your Discover rewards by redeeming for these gift cards.

Trading Up

In some cases, it is possible to use a merchant’s gift card to buy other gift cards.  For example, I’ve successfully done so in the past at Staples, Bed Bath & Beyond, and Sears.  This could be a way to get 20% off and trade up to a more valuable gift card (such as a gas station card, for example).  With any store, your ability to do this depends on store policy, whether the cashier allows it, and whether the register allows it.  Checkout the Frequent Miler Laboratory to see how people have fared in the past. 

Sears / Lands’ End

It’s interesting that Lands’ End gift cards are available for 20% off whereas Sears’ gift cards are 10% off.  Since Sears owns Lands’ End, the Lands’ End gift cards can be used at Sears (and at Kmart, Sears Outlet, Kenmore, PartsDirect, etc.).  So, if you need a Sears gift card, get the Lands’ End one instead!

Cashing Out

Suppose your goal is to get cash instead of gift cards.  You could always simply get cash back from Discover directly.  The question, though, is whether you could get more cash back by redeeming for gift cards and then liquidating those gift cards.  Let’s look at a few options:

Sell to reseller

I used GiftCardGranny to check the current rates that gift card resellers pay for gift cards from each of the above listed merchants.  In most cases you would end up with less money than by simply redeeming your Discover rewards for cash in the first place.  There are a few exceptions though where you could make a profit:

  • Brookstone: Buy $60 gift card for $40, resell for $44.40.  11% profit.
  • Staples: Buy $50 gift card for $40, resell for $43.  7.5% profit.
  • Bed Bath & Beyond: Buy $50 gift card for $40, resell for $41.  2.5% profit.
  • Lands’ End: Buy $50 gift card for $40, resell for $40.50.  1.3% profit.

The Brookstone option looks appealing, but keep in mind that resell prices change all the time, so your profit is not at all guaranteed.

Amazon twist (13% off Amazon gift cards!)

An interesting twist here is that some gift card resellers offer larger payments if you accept Amazon.com credit instead of cash.  So, if your real goal is to get an Amazon.com gift card you could do the following:

  • Redeem Discover rewards for Brookstone gift cards
  • Sell Brookstone gift cards to reseller in exchange for Amazon credit

Currently, for example, ABC Gift Cards offers $45.99 in Amazon credit for a $60 Brookstone gift card (you must mail in the gift card):

image

Since you paid only $40 to get the Brookstone gift card, this is a convoluted way to get Amazon gift cards for 13% off!  Personally, I wouldn’t do this because I’d rather get the cash (with an 11% profit) and then use my Chase Ink card to buy Amazon gift cards at an Office Supply store (for 5 points per dollar).  But if you don’t have another good way of getting Amazon gift cards at a discount, this could be a great option.

Free after Rebate

Another option for cashing out gift cards is to use them to buy “free after rebate” items.  Staples, in particular, often offers “free after easy rebate” items.  These are great because Staples has an extremely easy online form for filling out these rebates.  Usually there is an option to get the rebate as a check (rather than a Visa gift card).  It takes a while, but eventually your rebate will arrive in the mail.  Keep in mind, though, that you usually have to pay sales tax for the “free” items, so you won’t really get the full face value of the gift card back.  On the other hand, you will have gotten some stuff at Staples that may or may not be valuable to you.

Trade up to Visa/MasterCard

Now that Visa and MasterCard gift cards have PINs, it is pretty easy to cash them out (see “Gift card PINs“).  So, one option here is to get merchant gift cards at a hefty discount and use them in-store to buy Visa or MasterCard gift cards.  Of course, Visa and MasterCard gift cards usually come with a hefty fee, but it is still possible to do pretty well overall.  $100 gift cards typically have a 6% fee, and $200 gift cards typically have a 3.5% fee.  You can potentially find the $100 gift cards at Bed Bath & Beyond or Sears (see “The mysterious case of the secret gift card rack“).  $200 gift cards can usually be found at Staples.

Keep in mind that your ability to buy gift cards with other gift cards is highly dependent upon the rules of each store, the cashier, and whether the register allows the purchase.

Cash out in-store

If you live in (or travel frequently to) California, you can cash out any gift card with less than $10 balance.  Several States have laws in which merchants must allow customers to cash out their gift cards when under a certain balance.  In California, any gift card containing less than $10 qualifies.  Other States have $5 thresholds including: Maine, Massachusetts, Montana, and Washington.  Look for your State’s rules here: http://www.ncsl.org/issues-research/banking/gift-cards-and-certificates-statutes-and-legis.aspx

Regarding Staples gift cards

Staples gift cards appear to be one of the better deals shown above, but it is important to know about a few restrictions:

  • Staples gift cards cannot be used online (What?!  Yep, its true)
  • The Discover card page for the Staples gift card says “No more than five cards may be used for any single purchase.”  I don’t know if this is really enforced, but if so it can be a problem if you want to make large purchases since Discover only offers $25 face value gift cards from Staples.

 

Conclusion

It really is possible to get more than your money’s worth by redeeming Discover rewards for partner gift cards instead of cash.  The trick is to find the gift cards that offer the greatest discount compared to whatever alternative discounts are available elsewhere.  Also, always read the fine print.  Many of the “deals” have restrictions that make them bad deals all around.  And, sometimes, you’ll find the fine print amusing such as Whole Foods’ gift card Terms & Conditions:

…You can get our greens but unfortunately can’t redeem for cash unless required by law. A Gift Card will not be replaced or refunded if lost or stolen unless required by law so handle it like a carton of eggs…

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