When banks launch a credit card, they often offer not only a generous welcome bonus, but also extra rewards in certain spending categories. For example, Chase Freedom offers 5X points at gas stations, Amazon, and department stores; AMEX Blue Cash/Everyday Preferred offers 3% cash back / 4.5x points at supermarkets; and the Discover card offers 5% cash back in categories such as home improvement, clothing stores, and Amazon. Most people simply make regular purchases in those categories to earn the extra cash back or points. But with clever category conversion, you can make most of your spending (or even all of it) earn elevated cash back or bonus points. Today, we’ll introduce an important credit card technique: category swap.

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Two Examples

Before explaining category swap in detail, let’s start with two examples so you can get an intuitive feel for how it works:

Example 1: Xiao Ming has only one credit card, the Discover it. He drives a lot and spends $400 a month on gas. But Discover’s 5% cash back category for Q4 is Amazon, Clothing Store, and Department Store. So does that mean he should just swipe his Discover card directly at the gas station and settle for only 1% cash back?

Solution: Category Swap (Department Store->Gas Card->Gas Station)

  • Xiao Ming can first go to Sears (which Discover defines as a Department Store) and buy a Shell gas card (a Shell gift card), while also earning Discover’s 5% cash back at department stores
  • He then uses the Shell gas card at a Shell gas station to pay for gas
  • This is effectively the same as earning 5% cash back with the Discover card on gas station spending
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Example 2: Xiao Fang has an AMEX EveryDay Preferred credit card, which earns 4.5x points at supermarkets. She shops frequently at Chinese supermarkets, but those stores do not accept AMEX and only take VISA/MASTER. How can she still enjoy those elevated rewards at Chinese supermarkets?

Solution: Category Swap (US Supermarket->Visa Gift Card->Chinese Supermarket)

  • Use the AMEX Everyday Preferred card at a local US supermarket that accepts AMEX (such as Kroger) to buy a Visa gift card, earning 4.5X points, while paying a small fee (for a $500 card, the fee is about 1%)
  • Use the Visa gift card to shop at the Chinese supermarket
  • This is effectively the same as using the AMEX EDP card at a Chinese supermarket to earn 4.5x points, while paying a 1% fee
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What Is Category Swap?

In short: you use a credit card with elevated cash back or bonus points in category A to buy something that can be used to pay in category B, and then spend in category B, effectively turning category B spending into high-reward spending.

Using the two examples above, Example 1 uses a high-cash-back credit card (Discover 5%) in category A (Department Store) to buy something that can be used for payment in category B (gas station), namely a Shell gift card, and thus earns high cash back (5%). Similarly, Example 2 uses a US supermarket to buy a Visa gift card, earns 4.5x points, and then uses the Visa gift card at a Chinese supermarket, thereby generating elevated rewards there as well.

How Do You Actually Do It?

  • First, look at what credit cards you currently have and which categories they cover, such as department stores, supermarkets, Amazon, etc.
  • Think about which of your expenses are not covered by those categories, such as gas
  • Do stores in the covered categories sell gift cards that can be used at stores in categories that are not covered? (For example, most supermarkets sell gas cards such as Shell and Exxon.)
  • Can stores in the covered categories use your credit card to buy those gift cards? (Most supermarkets allow you to buy gas cards directly with a credit card.)

If everything works the way it does in the examples above, then congratulations: as long as you have a credit card that earns elevated rewards in one category, you can use category swap to earn elevated rewards in other categories too.

The Bridge Behind Category Swap

You may have noticed that all of the methods above rely on one very important bridge: gift cards. If you can directly buy a gift card for an uncovered category in a category where you earn elevated rewards, then everything is very simple. But sometimes the store where you earn elevated rewards does not sell the gift card you need. For example, Chinese supermarkets usually do not have their own gift cards, and Target and Walmart gift cards are rarely sold in physical stores operated by other merchants. In that case, you should consider a universal bridge: VISA/MASTER Gift Card.

Generally speaking, any store that accepts VISA/MASTER credit cards will also accept VISA/MASTER gift cards. So if you can buy these gift cards at stores in elevated-reward categories, such as supermarkets, then in theory you can use them almost anywhere. That effectively means all of your spending can earn elevated cash back or bonus points. For example, if you need to spend a large amount on car repairs, most repair shops do not fall into common bonus categories. So you could use your AMEX Everyday Preferred card at a supermarket to buy several $500 Visa gift cards, earn n*500*4.5 MR points, and then use those Visa gift cards to pay for the repair bill. That way, your auto repair spending also effectively earns 4.5x rewards. Of course, keep in mind that these gift cards usually carry activation fees ($3.99-$6.99 per card), so buying $500 denominations keeps that cost around 1%, which is still much lower than the value of the rewards you earn.

Another useful bridge is the eBay gift card. On eBay.com, you can use eBay gift cards to buy many kinds of gift cards, such as Target and Staples. Combined with occasional 5x eBay Bucks promotions and some cashback portals, you may be able to convert the eBay gift cards you have into the gift cards you actually need at no loss, or even at a profit, thereby completing the category swap. Of course, this approach takes some time to research, and we will introduce examples on this site in the future.

Some Category Swaps I Recommend

AMEX Offer

People often talk about 20%-off gas cards or 20%-off Amazon gift cards. How do those deals come about? First, AMEX often runs Offers like 50-10 or 100-20 at office supply stores such as Staples, OFFICE DEPOT, and OFFICE MAX. If you manage to add one of those offers, congratulations! These stores often sell a large number of third-party gift cards, including Shell, Amazon, and eBay, as well as VISA/MASTER gift cards. So if you use your AMEX credit card to buy the gift cards you need, it is effectively the same as buying them at a 20% discount. For example, if you buy a $50 gas card or Amazon gift card, the AMEX Offer gives you back $10. Therefore, when you see a strong AMEX OFFER like this, add it to your account right away. If you are not familiar with AMEX OFFER, see this article: AMEX OFFER Explained.

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Buy VISA/MASTER Gift Cards at Supermarkets

US supermarkets often also sell gift cards for other stores, as well as VISA/MASTER gift cards. That makes credit cards with elevated rewards or cash back at supermarkets especially useful. Suppose you have a credit card that earns 5% cash back at supermarkets. If you buy a Visa gift card at a supermarket (losing 1% to the activation fee), and then use that Visa gift card for all your other everyday spending, you are effectively getting 4% cash back on all purchases (5%-1%).

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Which credit cards and which stores are good for category conversion?

From the two methods recommended above, first, credit cards issued by AMEX are especially suitable, because they often offer discounted gift cards such as 50-10, which is effectively 20% off. In other words, within the category you need, you can buy what you want at only 80% of the price. For a specific list of AMEX cards, see: Common Credit Cards.

Second, credit cards that earn elevated rewards or cash back at supermarkets, department stores, drugstores, office supply stores, and gas stations are also very suitable for buying visa/master gift cards at those stores to turn all spending into bonus-category spending. The built-in bonus rewards can offset the fees charged by VISA/MASTER Card gift cards. Below are some commonly used credit cards:

  • Supermarkets / grocery stores (Grocery Store: some US supermarket chains)
  • Department stores (Department Store: Sears, Kohl's)
    • Chase Freedom (5x points in certain quarters, equivalent to 8% cash back, $1,500 cap, no annual fee)
    • Discover IT/More (5% cash back in certain quarters, $1,500 cap, no annual fee)
  • Drugstores (Drug Store: CVS, Walgreen, Rite-aid)
  • Office supply stores (Office Supply: Office Depot/Max, Staples)
    • Chase INK (5x points, $95 annual fee)
    • AMEX Simply Cash (5% cash back, no annual fee)
  • Gas stations (Gas Station: 7-11)
    • Discover IT/More (5% cash back in certain quarters, $1,500 cap, no annual fee)
    • Chase Freedom (5x points in certain quarters, equivalent to 8% cash back, $1,500 cap, no annual fee)

Things to keep in mind

  • Since you are buying gift cards for the conversion, the cards can be lost or stolen, so it is best to use them sooner rather than later.
  • Not every store allows you to buy gift cards with a credit card, especially Visa/MASTER gift cards. If a purchase does not go through, try again at a different time or with a different cashier.
  • Buying large-value gift cards may trigger a Fraud Alert from the credit card issuer, so you can either notify the issuer in advance or call to clear the Alert at the time. Of course, if the credit card was just opened, it is not recommended to immediately buy large amounts, so as not to attract unwanted attention from the bank.
  • If possible, try not to put all of one card's spending into bonus categories. Occasionally making some 1% category purchases lets the bank make a little money too.

Articles in this tips series