【2020.7 Update】Discover cashback can now be redeemed for gift cards starting at just $5, whereas the previous minimum was $20. If you happen to shop at these merchants, redeeming for gift cards at an effective 80%–90% of face value is also a great way to save money. Another consumer-friendly feature is that each brand’s gift card discount is fixed: whether you redeem $5-$200, the discount is the same, usually between 8% and 9.5% off, which is quite good. Sometimes there are limited-time gift card redemption offers with slightly better discounts. Their physical gift cards are mailed and take about a week to arrive; eGCs are usually delivered instantly, so if you need to shop online, choose eGC.

Introduction to Discover Cashback

The reason I wrote a dedicated post on how to use Discover cashback is that this is probably the card most people have, and Discover cashback is especially easy to earn from many different sources. Before you know it, you may have built up a pretty substantial balance. If you use it well, you can get more value than just redeeming it at face value.

How You Earn Cashback

Most cashback comes from the Discover it card family:

The old refer-a-friend program has already been changed to statement credits, and the Discover Deal shopping portal has been shut down.

Cashback Features

  • Cashback does not expire, but it cannot be transferred between cards
  • Cashback earned during a billing cycle appears on the following statement
  • Cashback earned in the last few days before statement close may not appear until the statement after next
  • The Cashback Match posts on the 13th statement for a new card
  • If your card is closed, the cashback will be mailed back to you in the form of a check

How to Redeem Cashback

When you want to redeem cashback, just click rewards-redeem cashback in your account interface.

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Here are some of the more commonly used redemption methods; I won’t cover donation here. In the discussion below, if $1 in cashback can be redeemed for $1 in value, I label it as (1). If it can be redeemed for $1.2 in value, I label it as (1.2). So of course, the higher the ratio, the better.

  • Redeem for cash (1)
  • Use directly on Amazon (0.99)
  • Redeem for merchant gift cards (1.07-2)

Redeem for Cash (1)

This is probably the method most people use most often. You can redeem as a statement credit to directly reduce your bill, or redeem to a bank account (ACH).

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The advantage of this method is:

  • You can redeem at any time, with no minimum redemption amount.

Use on Amazon (0.99)

Discover cashback can be used directly on Amazon, but I generally do not recommend it, because the redemption value of 0.99 is lower than redeeming for cash.

The reason the redemption value is 0.99 is simple: $1 in Discover cashback = $1 of spending on Amazon. But if instead of redeeming directly on Amazon, you simply use your Discover credit card to pay on Amazon, you can earn at least 1% cashback, and then redeem that cashback as a statement credit to offset the purchase. In effect, that means your cashback was only redeemed at a value of 0.99. So in general, there is really no need to use cashback directly on Amazon. Just redeem it for cash instead.

At first glance, this method may not seem worth discussing because the redemption value is even lower than taking cash, but there are exceptions. Discover and Amazon occasionally run promotions where using Discover cashback on Amazon can get you $10-$15 off.

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  • When these promotions are available, you only need to redeem $0.01 in cashback, apply the promo code, and then pay the rest with your Discover credit card or an Amazon gift card.

So when redeeming, it is best to leave a tiny bit of cashback in your account so you can jump on these promotions right away if they appear.

Redeem for Merchant Gift Cards (1.07-2)

The ability to redeem for merchant gift cards at higher value is the main reason I like Discover cashback, and it is also the easiest way to get outsized value.

Discover cashback can be redeemed with a very wide range of merchants. Merchant gift cards generally fall into several tiers:

  • $20 for $40 (2): rental car certificates, cruise certificates (not currently available)
  • $20 for $25 (1.25): including Staples, Overstock, Nike, and clothing stores
  • $45 for $50 (1.11): including most merchants, such as department stores (Kohl's), beauty retailers (Sephora), and restaurants
  • $70 for $75 (1.07): gas cards, Whole Foods (not currently available)

Overall, most merchants fall into the 1.11 tier, which means you can effectively buy most gift cards at about a 10% discount using Discover cashback. Compared with discounted gift cards bought from secondary-market gift card websites, Discover gift cards are generally safer because Discover works directly with the merchants. Some gift cards are also available as e-gift cards, so it is best to redeem your cashback only when you are actually ready to shop.

One thing to note is that the highest-value rental car and cruise certificates often have limits on how many can be used at once. It is usually best to redeem the highest denomination available, such as $60 for $120. Before redeeming, you should confirm with the merchant how many of these certificates can be used in a single transaction. Also, after using a rental car certificate, your credit card’s built-in rental car insurance may no longer apply. Of course, if you are already buying the rental company’s insurance, then this is not a concern.

Summary

If you already plan to shop with these merchants, I recommend redeeming for merchant gift cards, since buying at an effective 80%–90% of face value is a pretty good deal. If you want to save up for larger rental car or cruise certificates, it is best to confirm the merchant’s voucher usage terms first. If you do not need to shop, then just redeem for cash. That said, it is still a good idea to keep a tiny amount of cashback available in case an Amazon promotion comes along.

The Value of Discover Cashback

Based on the analysis above, the average redemption value of Discover cashback is about 1.1, which means:

  • $1 in cashback = $1.1 in redemption value (regular users)

New Discover cardholders can also get one year of doubled cashback. For example, if you earned $100 cashback total in your first 12 months, then on your 13th statement you would receive an extra $100 in cashback. So for new Discover users, the value becomes:

  • $1 in cashback = 2*1.1=$2.2 in redemption value (new cardholders)

The reason we calculate this redemption value is that it helps us analyze when to use Discover for purchases and when to use the Discover Deal portal to earn cashback. For example, in Q1 2016, using the Discover it credit card and Chase Freedom for gas purchases would earn 5% cashback and 5x points, respectively. If Chase points are valued at 1.6 and Discover cashback is valued at 2.2, then we should choose the Discover credit card for gas purchases (5*2.2>5*1.6). Likewise, when comparing shopping portals, you can multiply the Discover cashback rate by 2.2 and compare it against other cashback sites.

Of course, all of this value depends on two things:

  • You have a need to redeem for merchant gift cards
  • You successfully receive the doubled cashback

If you are an existing user and do not have this doubled cashback promotion, then just use 1.1 in your calculations instead.

Discover Credit Cards and Related Articles

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  • Welcome bonus: $100 cash back (one purchase within three months)
  • Rewards: Earn 5% cash back in different categories each quarter, doubled to 10% in the first year
  • Redemption: Redeem directly; gift cards may be available at a discount, up to 5% off
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