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Turn Your Credit Card Rewards Into Discounted Gift Cards!

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The gist: Use your credit card’s store rewards to buy gift cards and save money in the long run.

Gift cards are all over the place! You can always buy them directly from businesses, of course, but you can also find large selections of gift cards (called “gift card malls”) at major grocery stores, drugstores, and big-box retailers like Walmart. But the key to buying gift cards isn’t just convenience. With the right rewards credit card, you can save some extra money on them too.

To make your gift card purchases really count, buy them from whatever place gives you the best value. Lots of rewards cards offer extra bonuses at grocery and department stores or restaurants, for example, all of which sell gift cards. If you regularly frequent Starbucks, Amazon and Chipotle (hypothetically, of course) but only get rewards at grocery stores, you’re in luck. Stock up on gift cards and use them at your retailer of choice, essentially earning yourself maximum rewards wherever you go.

Here are our picks for credit cards that offer the best rewards for retailers.

AmEx Blue Cash takes the cake with 6% back

The American Express Blue Cash Preferred offers a staggering 6% cash back at supermarkets (up to $6,000 spent a year) and unlimited 3% back at department stores, two great places to buy gift cards. And you needn’t limit yourself to just gifts: hit up the neighborhood Starbucks a lot? Planning to download the entire Breaking Bad series from iTunes? Get a gift card and apply it to your purchases to earn 6% rewards everywhere you buy gift cards for (just keep in mind the $6k spending cap). Though supermarkets also carry department store gift cards, the supermarket is obviously a better deal, you may get more variety at Target or getting the card straight from a department store – especially if the gift card your grandma really wants isn’t offered at the supermarket around the corner. The Blue Cash Preferred has a $75 annual fee, but you’ll easily earn that back in rewards if you spend $105 bucks a month on groceries. Plus, the first year’s fee is negated with room to spare by a $100 signup bonus if you spend $1,000 in 3 months.

American Express Blue Cash Everyday: No fee, no problem

If you’re leery of an annual fee, the Blue Cash Preferred’s no-fee cousin gives 3% back on groceries (up to $6k/year), unlimited 2% on gas and department stores and 1% elsewhere. The same logic of buying gift cards at supermarkets applies here, too. Now, we tend to suggest the Preferred over the Blue Cash Everyday because the $75 annual fee is easily offset, but should you be willing to take a hit in the rewards category to avoid that charge, the Everyday’s not a bad way to go, especially since you get a $100 signup bonus if you spend $1k in 3 months.

Chase Freedom, Citi Dividend and Discover More: 5% back for the holidays

The Chase Freedom, Citi Dividend and Discover More cards all have rotating 5% back categories that are specially geared for holiday spending. All of these no-fee cards are offering 5% back at department stores, among other places, through the fourth quarter of 2011. Here are the cards’ bonus categories through December:

  • Discover More: clothing, restaurants and department stores
  • Chase Freedom: restaurants, movies, charity and department stores
  • Citi Dividend: clothing, electronics, toy stores and department stores