When choosing credit card rewards, skip the gift cards

It’s a maneuver many credit card holders know well: the Hail Mary of rewards — redeeming points for a gift card.

You have a couple of thousand points left on your credit card, and you want to close your account. You don’t want to forfeit those rewards. But they’re not enough for an airline ticket, and you don’t meet the minimum redemption requirement for cash back. So, like a kid reluctantly trading arcade tickets for a pink rubber eraser, you get a gift card.

Gift cards remain perhaps the most ubiquitous redemption option available among credit card issuers. But for cardholders, they can be a miss, offering limited versatility and so-so redemption values. Even when you’re low on credit card rewards, better options abound.

Why issuers offer gift cards

In the earlier days of credit card rewards, gift cards added much-needed variety to otherwise narrow rewards programs. No travel plans? Instead of letting airline miles expire, you could get a gift card instead.

“[Loyalty programs] want to give their consumers choice,” says Teri Llach, chief marketing officer of Blackhawk Network, a major distributor of gift cards whose clients include Chase and United MileagePlus. “They want their consumers to use their points in the most efficient, effective way, [which] makes them more loyal to that program.” Offering gift cards helps them do that, she says.

Gift cards are also cost-effective for issuers. While some issuers pay gift card distributors for fulfillment services, the distributor and issuer also generally split a small percentage of the gift card’s value, Llach says.

Why it can be a lackluster deal

• Limited redemption value. Redeeming rewards for a gift card generally gets 1 cent or less per point or mile, according to NerdWallet valuations.
• Easy to lose or forget.
• Lag in delivery. If your issuer offers plastic gift cards but not the digital variety, you’ll have to wait for your card to arrive via snail mail.
• Fewer benefits than credit cards. The Credit Card Act of 2009 generally set limits on gift card fees and expiration dates, making them more consumer-friendly. Still, they don’t offer the same consumer protections as credit cards.

How to stretch your rewards further

Even when you’re low on rewards or travel plans, can’t meet the minimum redemption requirement for cash back or statement credit or just want an uncomplicated goodie, you have options. Before making a beeline for the gift card section, consider these often-overlooked redemption options that offer better value and versatility:

• If you want a convenient treat, try direct merchant redemption. See whether your issuer lets you redeem rewards directly and instantly with partner sites, such as Amazon. This way, you can treat yourself without waiting for a gift card to arrive in your inbox or mailbox, generally without a minimum redemption requirement. You also won’t have to worry about losing or forgetting a half-used gift card later on.

• If you don’t have quite enough points for a trip, combine points and cash. Several loyalty programs let you pay for flights and hotel stays partly with cash and partly with rewards. With this option, you might be able to save on a trip while getting a good return on points and miles. Because you’re putting the trip on your credit card, you’ll still reap all the travel-related perks it offers.

• If another loyalty program offers more value, look into point transfers. If your card comes with 1:1 transfer partners, moving rewards to a loyalty program you already use could be the most valuable choice. Assuming you can meet the minimum redemption requirements, making the move could double or triple the value of your points or miles.

Claire Tsosie is a staff writer at NerdWallet, a personal finance website.