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Gift cards are an easy-to-please present for just about anyone. You might be considering picking up some gift cards as a nice surprise for friends and family or as a special treat to yourself. You might also be considering putting those purchases on a credit card to earn rewards.
Can you buy gift cards with a credit card? The short answer is yes, but. Gift card purchases are allowed to be paid for with credit cards in most circumstances, but you might not earn the rewards you expect.
Why might you want to buy gift cards with a credit card? Is it a good idea? We’ll discuss all of these below.
Reasons to Buy Gift Cards with a Credit Card
Earn Points on a Gift
The most obvious reason why you might want to buy a gift card with a credit card is to earn points or cash back on that gift card purchase. Most merchants who sell gift cards will allow you to pay for your gift card purchase with a credit card.
Expand a Bonus Category
Purchasing gift cards with a credit card can be a great way to “expand” a bonus category. If you’ve checked out our coverage of 5% rewards credit cards, you know that there are several credit cards offering 5% back or more at places like Walmart, Amazon, Target, office supply stores and more. All of these places sell gift cards and using a gift card at a merchant where you earn 5% can be a great way to increase rewards you earn for purchases you otherwise make anyway.
For example, many office supply stores sell Starbucks gift cards. If you use a credit card to purchase your Starbucks drink, you might earn 1% to 2% rewards, but if you purchase a Starbucks gift card at an office supply store you could earn 5 Chase Ultimate Rewards® points per dollar by using the Ink Business Cash® Credit Card to make the purchase since this card earns 5% cash back on the first $25,000 spent in combined purchases at office supply stores and on internet, cable and phone services each account anniversary year and 2% cash back on the first $25,000 spent in combined purchases at gas stations and restaurants each account anniversary year. Earn 1% cash back on all other purchases.
Take Advantage of Anticipated Spending
Credit cards such as the Chase Freedom Flex℠ and Discover it® Cash Back offer quarterly rotating bonus categories with enrollment in areas like home improvement stores, grocery stores or gas stations. Sometimes the timing of those bonus categories don’t match your planned purchasing or maybe you simply don’t spend enough in one of the promotional categories to maximize the bonus rewards on $1,500 in purchases. Buying gift cards can be a reasonable way to maximize spending on future purchases and earn additional rewards.
During the year, I will surely spend at least $1,500 on groceries, so purchasing a grocery store gift card during a quarter when my Discover it® Cash Back card offers 5% cash back on groceries means that I can earn an effective 5% cash back on a full $1,500 of my grocery store purchases. If you have a home improvement project planned in the future, buying a home improvement gift card when home improvement stores are a quarterly category bonus can lock in 5% cash back on those purchases.
Purchasing gift cards for anticipated future spending can be especially useful with cards offering category bonuses, but can also be used with cards like the Blue Cash Preferred® Card from American Express that have annual limits on bonus cash-back categories.
Take Advantage of Promotions like Amex Offers
Many cards offer periodic promotions, such as a discount or increased cash back at specific merchants. If you have an American Express card, you no doubt have seen multiple Amex Offers presented to you when you log into your account online, but other banks like Citi and Chase offer similar promotions. If you see one of these offers for a merchant you frequent, but do not have an immediate purchase in mind, buying a gift card can be a good way to lock in one of these promotions.
For example, in April 2022 American Express is offering $10 back on $60 at Macy’s on one of my Amex credit cards. If you are targeted for an offer similar to this and use it to purchase a gift card, you can get additional cash back on your future Macy’s purchase, even if you don’t have an immediate need.
Another example, in April 2022 one of my Chase credit cards has an offer for a 10% back promotion on purchases at Panera. If you normally eat at Panera, it might be to your advantage to purchase a gift card using a similar promotional offer, locking in your discount on future spending at Panera.
Why You Might Not Want to Buy Gift Cards
So with all of these reasons to use a credit card to purchase gift cards, why would you want to not buy as many gift cards as possible? There are a few reasons to be judicious in your gift card purchases.
For starters, gift cards tie your cash to a certain merchant. When you purchase a gift card, you are converting cash, which can be used anywhere, into a credit that can only be used at a certain merchant. This means you have less flexibility in your purchasing. If you purchase gift cards speculatively, you might find yourself paying a higher price to buy something from a merchant in order to use up a gift card. In the worst case scenario, if the store associated with a gift card that you purchased goes bankrupt, you might find yourself having paid for a plastic card that is now worthless.
Second, gift cards do not have the same consumer protections as credit cards, such as limited liability for fraudulent purchases. If someone fraudulently charges your credit card, there’s a good chance that you won’t end up paying for that fraudulent charge. If someone nefarious charges a purchase to your gift card, you may have limited recourse. Additionally, using gift cards usually means that you give up valuable benefits that might be offered by your credit card like return protection, purchase protection or extended warranties.
Finally, one of the reasons that merchants love gift cards is because they are subject to breakage. Simply, breakage represents the amount of gift cards that are purchased but never redeemed. If you purchase gift cards, make sure that you have a plan to keep track of and use them.
Terms and Conditions
Whether you are buying gift cards using your credit card in order to take advantage of a quarterly category bonus, a bonus cash-back category or a limited-time promotion like an Amex Offer, be sure to read the terms and conditions. Many issuers exclude gift cards or “cash-like transactions” from earning rewards.
For example, the Chase Sapphire Preferred® Card prohibits earning points on “cash-like transactions.” The American Express® Gold Card explicitly states that “Eligible purchases do NOT include…purchases of gift cards… or purchases of other cash equivalents.” All cards’ rewards programs are subject to their specific terms and conditions, so be sure to understand the rules relevant to your credit card’s rewards program before purchasing gift cards.
Terms and enforcement of terms vary by issuer and card. Most credit cards will earn rewards for normal levels of gift card purchases, but be warned that running afoul of your credit card’s terms and conditions can have severe penalties including card shutdowns and forfeiting earned rewards.
Buying gift cards with a credit card can be a rewarding way to increase your rewards on purchases that you might otherwise make. Used strategically, gift card purchases can increase your cash back or transferable point rewards, but be sure to understand your cards’ terms and conditions prior to purchasing gift cards.