Is redeeming rewards for gift cards a good idea?

Many credit card issuers allow you to purchase gift cards using points, miles or cash back — but are the redemptions worth it?

It depends.

Why redeem rewards for gift cards?

There are many reasons to redeem rewards for gift cards. First, redeeming credit card rewards for gift cards can help you cover a simple gift. Once you purchase a gift card using rewards, you can then use it to buy gifts or gift the card itself. For example, a Sephora or Ulta gift card may be a solid birthday present if you have a sister who loves makeup. Or, if you have a friend having a baby shower, you could buy a Target gift card and use it to purchase the baby gift.

You may also want to buy gift cards using your credit card rewards to prevent rewards from expiring due to account inactivity. The rules regarding rewards expiration vary by credit card. For example, Southwest credit card points don’t expire as long as you have an active Southwest Rapid Rewards account. The same goes for points earned through Chase Ultimate Rewards — there is no expiration date, but you must use the points before closing your account (or you lose the points).

On the other hand, rewards points earned with Wells Fargo business cards, for example, do not expire as long as the account is open and in good standing.

The redemption value of gift cards

The value of your gift card redemption will vary by credit card and whether additional promotions are available.

Historically, gift card redemption has been seen as less valuable compared to other redemption options — which is still true in most cases. However, with cards like the Citi Rewards+® Card, for example, you’ll get more value for your points when redeeming for gift cards (1 cent apiece) compared to redeeming them for cash back (0.5 cents a piece).

In most cases, redeeming rewards for travel gets you the best value for your money. With the Chase Sapphire Preferred® Card, for example, you’ll earn 1.25 cents per point on travel redeemed through Chase Travel^SM and 1.5 cents per point in the case of the Chase Sapphire Reserve®.

Further, there’s the potential for even greater reward value when you transfer rewards to a card’s hotel or airline partner. In the case of the Sapphire Reserve, points can be worth about 2.0 cents apiece toward high-value Chase transfer partner travel, according to Bankrate valuations.

Promotional offers

Regarding promotions, some credit cards offer discounts when redeeming your rewards for gift cards, meaning you’ll pay less than the card’s face value. For example, a $25 gift card may only cost you $20, in other words, you get to keep money in your pocket for the next person on your list.

Last year, Chase offered a 10 percent discount on gift card redemptions for brands like Macy’s and Panera Bread. Information about these offers typically comes directly to your inbox, but you can also check for updates on pages in your online account, such as Chase Offers and Amex Offers.

Do gift cards expire?

According to a recent Bankrate’s Gift Card Survey, 47 percent of U.S. adults have at least one unused gift card, which means many people are leaving money on the table.

Fortunately, due to the Credit CARD Act of 2009, gift cards distributed by card issuers can’t expire for at least five years after the date of activation. Exact expiration policies vary by gift card merchant and card issuer and can be found in the card’s terms and conditions.

The bottom line

Redeeming rewards for gift cards can be worthwhile — especially if there are promotions or if your card explicitly states it’s valuable to do so. Though redeeming rewards for travel typically offers the most value, it’s not always black and white.

If you don’t have upcoming travel plans or your points are on the verge of expiring, it may make sense to explore this route.