Gift cards are a longstanding favorite among both gift givers and getters. In a 2023 consumer survey from the National Retail Federation, 55% of holiday shoppers said they would like to receive a gift card.
Not only can you typically buy gift cards with a credit card, but you may also earn credit card rewards or get a discount for doing so. Knowing the benefits and risks of buying gift cards with a credit card can help you decide whether such purchases suit your needs.
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Why buy gift cards with a credit card?
By using a credit card for gift card purchases, you might earn rewards, get discounts and other special offers, and facilitate budget management. Make sure you read your card’s fine print to know whether gift card purchases will earn rewards.
To take advantage of credit card bonus categories
Buying gift cards can help you earn rewards at the highest rate your credit card offers, even for purchases that would normally qualify for a lower rate. For example, if you have a credit card that earns bonus rewards for grocery purchases, you may be able to buy gift cards to other stores while grocery shopping and earn a better return than you’d get by charging your credit card at those stores directly. The same approach can work at gas stations, home improvement stores or anywhere that sells gift cards and is eligible for a credit card bonus category.
To maximize rewards on future spending
Gift cards also present opportunities to lock in rewards or discounts for purchases you’re not yet ready to make. One such opportunity stems from credit cards with rotating bonus categories, such as the Chase Freedom Flex℠*The information for the Chase Freedom Flex℠ has been collected independently by CNN Underscored. The card details on this page have not been reviewed or provided by the card issuer. or Discover it® Cash Back*The information for the Discover it® Cash Back has been collected independently by CNN Underscored. The card details on this page have not been reviewed or provided by the card issuer. .
When you activate the bonus category, you’ll earn 5% cash back on up to $1,500 of spending (then 1%) in select categories that change each quarter (such as restaurants, gas stations or Amazon purchases). When a bonus category aligns with future spending needs, you can buy gift cards to capture that added value.
Another opportunity stems from programs such as Amex Offers and Chase Offers, which provide special discounts or bonuses when you enroll and use an eligible card to shop with select retailers. When you’re targeted for an offer that expires before you’ll be ready to use it, you may be able to effectively extend the offer period by purchasing a gift card from the retailer in question. However, offer terms may exclude gift card purchases, so be sure to read the fine print.
As a budgeting tool
Gift cards only accommodate purchases up to the amount that has been loaded, and once a gift card’s balance is spent, the card is no longer usable. Those constraints can be made useful.
“You are in control when it comes to setting your budget, and can customize gift card amounts based on the dollar amount that works best for you,” said Jay Jaffin, the chief marketing officer at Blackhawk Network, a branded payment technology firm with a focus on gift cards.
You can still exceed your budget when necessary, but the added step of buying a gift card (rather than simply swiping your credit card) may make you more aware of overspending when it happens.
Potential pitfalls of purchasing gift cards on credit
Despite the possible upsides, you might prefer to avoid purchasing gift cards on credit (or at all).
Gift cards have fewer protections
Credit cards offer a variety of consumer-friendly features, including basic fraud protection that limits your liability for unauthorized purchases. Perks such as return protection and extended warranty coverage can be useful when an item you purchase doesn’t work out.
You won’t get the same features from gift cards, which provide little recourse if your balance is used without your consent.
These shortcomings are exacerbated by the fact that gift cards have fewer security features than credit cards, making them prime targets for fraudsters.
“While shoppers love giving, receiving and using gift cards, unfortunately so do criminals, who are increasingly innovative and cunning,” said Julee Schmaus, spokesperson for the Retail Gift Card Association and leader of its task force on fraud and abuse mitigation.
Schmaus recommends gift card buyers exercise common sense precautions. “Only buy gift cards from trusted sources,” she said. “If you’re offered a deal that’s too good to be true, like a big discount on a gift card, it’s likely a scam or you’re getting a fraudulent card.”
Gift cards may come with fees and limitations
When you purchase a retail gift card, you generally get a balance of store credit equal to the amount you pay. However, Visa, Mastercard and American Express prepaid cards add activation fees on top of the purchase amount — for example, a $2.95 fee for a $10 gift card. Paying that surcharge keeps you from getting your full money’s worth.
In limited circ*mstances, your credit card issuer may view a gift card purchase as a cash advance, which incurs not only cash advance fees, but also interest charges. You’re more likely to see this when purchasing prepaid cards from a bank or other financial institution (as opposed to a retailer). To minimize the risk of accidental cash advance charges, call your card issuer and ask to lower your cash advance limit as low as they’ll allow.
Gift cards also force you into spending with a specific retailer, even if they don’t have what you want or fail to offer the best price. Plus, some franchise-based companies don’t compel franchisees to accept gift cards, while prepaid cards may require registration to be redeemed online and be valid only in the US. In contrast, credit cards are widely accepted worldwide and don’t similarly limit your shopping options.
Your credit card issuer might frown on gift card purchases
Buried in your credit card agreement, you may find language limiting how you earn credit card rewards for gift cards, or excluding gift card purchases from spending requirements to earn a welcome bonus. For example, many American Express credit card offers include the following fine print leaving gift card purchases out of rewards (emphasis added):
“Eligible purchases do NOT include fees or interest charges, cash advances, person to person payments, purchases of gift cards, purchases of travelers checks, purchases or reloading of prepaid cards, or purchases of other cash equivalents.”
In practice, buying gift cards in normal denominations and quantities is unlikely to raise any eyebrows, but you shouldn’t ignore such warnings or the potential repercussions for violating them.
Gift cards frequently go unused
Retailers are eager to sell gift cards because they know some percentage will never be redeemed (a phenomenon known as breakage). Unused funds represent a revenue center for retailers.
Breakage isn’t necessarily the fault of gift card holders — for example, balances may be void if a store changes ownership or goes out of business — but even if you do ultimately spend your gift cards, keeping a balance on them is like handing out a free loan to retailers.
Is buying a gift card with a credit card worth it?
Buying gift cards with a credit card can be worthwhile as a means to boost your return on spending or help keep you on budget. As with all purchases, however, you should think twice about buying gift cards on credit if it causes you to carry a balance. Whatever benefit you get from such purchases will probably be trivial compared to the extra amount you pay in interest charges.
Similarly, avoid buying large quantities of gift cards or prepaid cards (especially in pursuit of a welcome bonus) if your credit card issuer has rules against it. Card issuers have been known to rescind rewards or even close accounts outright when they detect such activity.
Frequently asked questions (FAQs)
Gift card purchases typically earn credit card points, miles or cash back, but some card issuers include terms that exclude gift card purchases from earning rewards or counting toward spending requirements for welcome bonuses.
Buying gift cards won’t impact your credit score directly. So long as you manage your credit responsibly, including by paying bills on time and not carrying balances, your credit should be in good shape.
Gift card purchases are not usually covered by credit card purchase protections, but you may be able to get a refund or request a chargeback for a compromised or inoperable gift card purchased directly from a legitimate vendor.
*The information for the following card(s) has been collected independently by CNN Underscored Money: Chase Freedom Flex℠*The information for the Chase Freedom Flex℠ has been collected independently by CNN Underscored. The card details on this page have not been reviewed or provided by the card issuer. and Discover it® Cash Back*The information for the Discover it® Cash Back has been collected independently by CNN Underscored. The card details on this page have not been reviewed or provided by the card issuer. . The card details on this page have not been reviewed or provided by the card issuer.
