What do second cousins, your kid’s babysitter and the neighbor two doors down have in common? They’re all hard to shop for when the holiday season rolls around.
If you’re struggling to find an appropriate, well-priced gift for someone in your life, you may be tempted to buy them a gift card. Conveniently enough, many credit card issuers offer gift cards in exchange for points, miles or cash back — but are the redemptions worthwhile? The answer is: it depends.
The redemption value of gift cards
The value you can extract from a gift card redemption depends on the credit card you have and any promotions the card is offering.
This past June, for example, Chase Freedom was offering a 10 percent discount on Ultimate Rewards redeemed for gift cards. This meant you could redeem 900 points, rather than 1,000 points, for a gift card with brands like iTunes and Hello Fresh.
In most cases, exchanging rewards for gift cards shorts you on the value of your points — however, there are times when it’s valuable.
If your credit card is advertising a promotional offer on gift card redemptions, explains Ted Rossman, Bankrate industry analyst, redeeming for a gift card rather than cash back or other redemption options may be in your best interest.
Chase and Wells Fargo are currently highlighting limited-time promotional offers on gift card redemptions with specific brands. Chase is offering 10 percent off Lowe’s and iTunes gift cards and 5 percent off Target gift cards, while Wells Fargo is offering 10 percent off gift cards from Home Depot, Kohl’s and more, according to Rossman.
“Trading 9,000 Ultimate Rewards points for a $100 Lowe’s gift card would make more sense than redeeming for $90 in cash back (assuming you’d make good use of the Lowe’s card),” says Rossman.
Many issuers won’t expire your rewards, but some have a policy that will eliminate your earnings under certain circumstances. Wells Fargo Go Far Rewards, for example, expires your rewards approximately five years after you’ve earned them.
If you have rewards that are about to expire (maybe from a lack of account activity or a policy like Wells Fargo’s), it might make sense to redeem them for something small — like a gift card — to prevent them from being erased entirely. As a bonus, gift cards distributed by card issuers, in accordance with the Credit CARD Act of 2009, can’t 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 during which you can use your rewards before they expire for good (around 60 days in some cases). Depending on the amount of rewards you’ve earned, your best bet may be redeeming for a few gift cards.
Based on the card you own, you could receive more value by redeeming for a gift card over cash back.
Rossman recently signed up for the Citi Premier® Card and is working towards its 60,000-point bonus (earned after spending $4,000 within your first three months). According to both Rossman and Citi calculations, the bonus is worth about $750 in travel when booked through the Citi Thank You Portal or $600 in cash back.
“My wife and I are planning to buy some furniture, and we don’t have any definite upcoming travel plans. We might rather get $600 in Pottery Barn gift cards now than an extra $150 off a hypothetical future trip,” says Rossman.
The bottom line
Though redeeming for gift cards typically isn’t your best bet at maximizing hard-earned credit card rewards, there are a few exceptions:
- Keep an eye out for issuers offering discounts on gift card redemptions by reading any issuer-sent communications or scanning sites like Doctor Of Credit. These offers may make it more lucrative for you to redeem for a gift card over cash back.
- If your rewards are on the verge of expiring, your only choice may be to redeem for a gift card, depending on the amount of rewards you have saved and other circumstances.
- Some cards may offer more value on gift card redemptions compared to others, so double-check the fine print on their site.