What's to stop people from doing this?

[NewSurrender]

So I was at the grocery store today and passed the prepaid/gift card fixture and had a thought.. Discover More and Chase Freedom both offer 5% back periodically at supermarkets and BCP offers 6% yearly.

What's to stop someone from buying a Visa or AmEx prepaid card at a grocery store, getting the 5/6% cashback and using it elsewhere, effectively getting 5/6% cashback everywhere you shop? I'm guessing there's something to stop this sort of behavior. I know merchants are categorized (such as retail, grocery, restaurant, etc), but do specific items get this same treatment too? When you run your card, can Chase/Discover tell you're buying $20 of food and $80 of gift cards?

There's gotta be something stopping people from doing this, besides the fact that it's slightly immoral. Also, does that mean that if I go to the grocery store and buy stuff such as toothpaste and deoderant, I won't get the 5% bonus?

Stupid question, I know, thanks in advance for the answers.

[mwm1212]

No they do not know what you are purchasing and I would not go as far to say it's immoral. There are far sketchier things you can do with a certain other card at a different store, but I won't get into all of that.

Also, Discover and Freedom cap the rewards when they run the 5%, I believe the AMEX cashback cards are not capped..... If you were to take full advantage more power to you. It would be a lot of hassle juggling gift cards for everyday purchases.

[yejun]

Prepaid card will usually cost extra to purchase I think.

[Anonymous]

I can't see how it's immoral.  I've noticed that Visa/Amex gift cards often cost more than they are worth, like $52 for a $50 card after an "activation fee" or such.  That will often blow your margin.  It can be a good deal with other gift cards though; I can't see anything wrong with it.

[Revelate]

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@yejun wrote:

Prepaid card will usually cost extra to purchase I think.

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+1

Pre-paid cards fall under a special category where it will almost certainly be counted as a Cash Advance (in general, to be avoided like the plague for a whole lot of reasons).  Specifically, there are fees associated with that which will wipe out any 6% earning you might actually make.

Not a stupid question at all.

[Repo-ed]

or just use another card to buy stuff from staples that gets a rebate, then hock item on ebay.

I don't even call that immoral.

[navigatethis12]

I do this kind of stuff all the time or liquidate the gift cards. I do not see it as immoral as the credit card company is still getting their cut of what you spend. The only deterrent is that some places do not allow gift cards to be purchased with a credit card.

[SamsungHDTV]

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@NewSurrender wrote:

So I was at the grocery store today and passed the prepaid/gift card fixture and had a thought.. Discover More and Chase Freedom both offer 5% back periodically at supermarkets and BCP offers 6% yearly.

What's to stop someone from buying a Visa or AmEx prepaid card at a grocery store, getting the 5/6% cashback and using it elsewhere, effectively getting 5/6% cashback everywhere you shop? I'm guessing there's something to stop this sort of behavior. I know merchants are categorized (such as retail, grocery, restaurant, etc), but do specific items get this same treatment too? When you run your card, can Chase/Discover tell you're buying $20 of food and $80 of gift cards?

There's gotta be something stopping people from doing this, besides the fact that it's slightly immoral. Also, does that mean that if I go to the grocery store and buy stuff such as toothpaste and deoderant, I won't get the 5% bonus?

Stupid question, I know, thanks in advance for the answers.

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It's the purchase fee when you buy a prepaid visa card. The last time I remember the for these things are: 

$25 Visa gift card cost $3.95

$50 Visa Gift card costs $4.95

@Anonymous at these rates you would be losing more in cash then you would be gaining in rewards. $50 dollar purchase @ 5% would be only $2.50 return vs paying $4.95 fee. So throw that out the window.

Anything you buy at the grocery store will get the 5% cash back. Whether its toothpaste or deodorant, your grocery store goes by a merchant code saying it's a grocery store. There's no way to say what's grocery and what's not. Another example is 5% cash back on gas stations, everything is 5% at a gas station regardless if its gas as long as the gas station propery claims its a gas station.

But you could use this to go buy vendor gift cards that don't charge a purchase fee at grocery stores (e.g Starbucks, Chili's, I-tunes gift cards) and earn 5% cash back. 

[Creditaddict]

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@Revelate wrote:

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@yejun wrote:

Prepaid card will usually cost extra to purchase I think.

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+1

Pre-paid cards fall under a special category where it will almost certainly be counted as a Cash Advance (in general, to be avoided like the plague for a whole lot of reasons).  Specifically, there are fees associated with that which will wipe out any 6% earning you might actually make.

Not a stupid question at all.

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Wait a minute... Purchasing a Visa or MasterCard pre-paid card at the grocery store like Ralphs is NOT going to be a Cash Advance transaction with your credit card you are using.

But yes I have looked at this, it was a big topic with 6% on Blue plus Amex and buying a pre-paid Amex and going to Costco and paying that way and getting your 2% for executive and 6% for blue grocery!!

but yes fee would probably wipe out and less you spend more.

[boomhower]

Buying the Visa/Amex cards as mentioned usually costs more than what it's worth with fees and such.  But buying store based cards, namely Walmart and Amazon, is a great way to maximize savings.