Ready to redeem your rewards? Most cash-back credit cards offer an array of redemption methods, and it can take some legwork to find the one that offers the most bang for your buck.
“There's no silver bullet when it comes to redeeming rewards,” says Lance Cothern, a CPA and blogger at Money, Life and More. “Every card and program is different.”
Here are seven ways to redeem your cash back rewards — and what you need to know before you cash in your stash.
1. Keep it simple: cash back
The most straightforward way to redeem your points is with cash back in the form of direct deposit, a paper check or a statement credit. Cash back can be a good choice for consumers who don't want to do a lot of number crunching and strategizing, Cothern says, noting that this redemption method is versatile because you can spend the money on anything you want.
If you go this route, Presh Talwalkar, who writes the blog Mind Your Decisions, recommends opting for direct deposit or a check. “Getting a statement credit is slightly worse,” he says. For example, if you have $100 in cash rewards that gets deposited into your checking account, you can then spend that money on your card, repay it with your $100 and earn more cash back. But “if you apply a statement credit, you use up the points, end of story,” he says.
2. Give the gift of plastic
Most cash-back rewards programs let you use your points to buy gift cards for a variety of retailers and restaurants. Plus, credit card issuers often offer specials on gift cards that can sweeten the deal. For example, Chase sometimes offers cardholders the chance to buy a $25 gift card with 2,000 points (which would otherwise be worth about $20), says Cothern. “It's a $5 bonus,” he says, adding: “One month it might be Home Depot, and then it might be TGI Fridays the next.” Buying gift cards with points can be a smart strategy for consumers who are strapped for cash during the holidays, Cothern says: “It can be a good way to pay for part of Christmas.”
3. Go shopping online
Many card issuers offer the ability to use your points for online purchases.
“Your value can vary,” says Eric Rosen, managing editor for ThePointsGuy.com.
For example, depending on the card, you might be able to redeem your points via the card's shopping portal or on a partner website (both Discover and Chase allow cardholders to pay with points at Amazon.com).
Yet the redemption rate will likely be no better than what you'd get if you simply got cash.
“You rarely get any special deals by going through one of these portals for points redemption,” Rosen says, adding that the shopping portals' real value lies in earning extra points, not in spending them. “But if they make it easier to redeem points for what you want, why not use them?”
4. Buy an experience
You might be able to use your points to take a hot air balloon ride over Napa Valley, get VIP passes to an NFL game or hobnob with Hollywood stars at a film premiere. “This can actually be a good deal,” Rosen says, pointing to a recent deal offered by Chase Ultimate Rewards: an exclusive travel package for the New York Jets for 90,000 points, or $900, for two people. The packages included game tickets, along with perks such as entry into an exclusive bar/lounge, food and non-alcoholic beverages, and access to a private deck near the Jets bench.
The monetary value of your points doesn't change; you're still getting 1 cent per point, Rosen says. But, “Sometimes you're getting a lot more value out of the experience, like exclusive access to celebrities or VIP areas.”
5. Transfer points to a partner program
Some cards will let you transfer points to other programs as an alternative to getting cash, Cothern says.
“With some, you can get a lot more value than a penny per point,” he says, referring to the most common valuation of reward points.
For example, with the Chase Sapphire Preferred card, you can transfer your points at a 1-to-1 ratio into the Southwest Rapid Rewards program. Once those points are in your Rapid Rewards account, you can redeem them for 1.6 cents per mile toward a Wanna Get Away fare. Considering that the redemption rate for other airlines often hovers at around 1 cent per mile, that's a good deal.
Southwest will devalue its points slightly in March 2014, but you'll still get more than a cent per point.
“It's a little more complicated,” Cothern says of this method of redeeming points. “But it can be worth it.”
6. Do good: donate to charity
With some programs, you can donate your cash-back rewards to selected charities. For example, Discover “it” cardholders can give to the American Red Cross, Junior Achievement, the Make-a-Wish Foundation and other groups — and Discover will make an “extra annual donation” to the organization that gets the most gifts. Capital One, meanwhile, has its “No Hassle Giving” site that lets cardholders donate their cash-back rewards to a charity of their choice.
Unlike donating air miles to charity, donating cash back is tax deductible, according to the IRS.
7. Bid in an online auction
Some programs offer online auctions where you can use your points to bid against other cardholders and win items. But experts say this might not be the best way to redeem your cash back. With auctions, you can get caught up in the excitement of a bidding war and spend more points than you intended.
“Auctions are a fun way to lose your points quickly,” Talwalkar says.
No matter which method sounds best to you, do the math and think through your choices.
“Deciding strategically what to redeem your points for can make a huge difference in the value you get,” Rosen says.