Buying Merchandise With Points: A Good Deal?

Black Friday Shopping

Dear Cashing In,

I am looking for a rewards card, and see that many offer special rotating discounts for certain classes of merchandise. I'm sorry, but I'm a busy man, and don't think I want to spend the time tracking what's on discount every quarter. My question then is in regards to the online stores that most of the big rewards cards have, where you spend your points for electronics or other merchandise. The items cost 25,000 points for this, 15,000 points for that. This is where I get confused about whether I'm getting a fair deal. When you translate the points into dollars spent, are the prices of these online rewards card shops any bargain? Or am I better off cashing in my points and just finding the best price I can directly from a merchant? -- Yusef

Dear Yusef, Good question. The answer is that in most cases, you're not getting any real bargains on the merchandise offered by most major rewards programs -- unless you consider paying points instead of cash a bargain in itself (many people do). Products  on those rewards sites are essentially offered at retail list prices, which have been translated into point value.

As we all know, if you shop around -- especially online -- you can usually beat the retail list price, often by a hefty percentage. So if you're someone who always takes the time to hunt down a bargain, you're probably better off cashing in your points first and then shopping around, as long as you end up buying from a reputable seller.

Now and then, you can score a good deal by bidding on a product on a rewards auction site, such as the one for Chase Ultimate Rewards or United Airline's Headliners. But it's up to you to set the limit you're willing to pay for something before you bid, just as you would with a regular auction. You have to determine the best price you'd find for a particular item, say that HD television you've been eyeing, figure out how much your points would get you in cash rewards, then limit your bid accordingly.

You will see these rewards programs and auctions shift their focus to merchandise, especially electronics, right around Black Friday. In the weeks leading up to the holiday season, many people find themselves strapped for cash and happy to trade some of the points they've accumulated in order to stretch their spending.

Soon after the Ultimate Rewards auctions launched in 2009, you could score some real bargains on merchandise and experiences. Now that they've caught on a bit though, it can sometimes go the other way. While bargains can still be had, you may end up paying more than you expected, if you're not careful. I was told by Sean O'Reilly, general manager Chase Card Services, that some of the merchandise up for bid was actually going for above retail prices last holiday season. "I think what people value there," he said, "is that they can use their points not just for the hot electronic items like the Canon digital camera and the iPad, but the guarantee of shipping as part of the auction, the guarantee of getting the gift before the holiday."

As to your observation that you're too busy to keep up with rotating rewards categories, such as those offered by the Chase Freedom and Discover More cards, you are not alone. A recent survey by Capital One found that while cardholders seek a high-earn rate on their rewards (and you can't beat 5%), nearly half said they prefer to keep redemption simpler -- i.e., no sign-ups, special categories or spending thresholds.

This seems to indicate a growing resistance to the hassle of registering every three months for the next 5%-off category. Miss the deadline for putting your name in the hat and you miss out on that quarter's big savings on gas, groceries or whatever else is up for deep discount. I'm not sure what percentage of cardholders are missing the boat on those registrations, but if it's significant, it could account for why the banks can afford to offer 5% discounts in the first place. Otherwise, they would just make it an automatic benefit.