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“Reader Questions” are answered twice a week by TPG Senior Points & Miles Contributor Ethan Steinberg.
The best way to get an outsized value out of your hard-earned points and miles is by transferring them to an airline partner for luxurious first-class redemptions. But some people, and businesses, are more interested in putting money in the bank than in scoring free travel. TPG reader Ben wants to know what his options are for cashing out points:
Is it possible to invest my points in a brokerage account?
TPG READER BEN
Assuming you’ve made the decision to focus on cashing out instead of booking free travel, investing your rewards to let them grow and compound over time is a great decision. There are a couple different options, depending on what points currencies you have. Hotel and airline miles generally can’t be cashed out, but many transferable points can.
One of the lesser known versions of the popular Platinum Card® from American Express is the Amex Platinum Card for Schwab Customers. In addition to enjoying all the great benefits of Platinum membership (and a 60,000 point welcome bonus after spending $5,000 in the first 3 months), this card lets you cash out your Membership Rewards points at a rate of 1.25 cents each directly into your Schwab account. This is significantly below TPG’s valuation of Membership Rewards points at 2 cents each, but if you’re not redeeming your points for travel it can be a decent value.
Another great option is the Bank of America Premium Rewards credit card. Since this is solely a cash-back card you’re not sacrificing any value by choosing to cash out your points, that’s what they’re meant for! While this is a great card to begin with, it’s even more rewarding for BoA and Merrill Lynch customers. If you’re eligible to enroll in the BoA Preferred Rewards program, the card will earn at the following rates:
| Spend Categories | Regular card holder | Tier 1 – Gold ($20,000 – $50,000) | Tier 2 – Platinum ($50,000 – $100,000) | Tier 3 – Platinum Honors ($100,000+) |
| Travel/Dining Earnings | 2x points | 2.5x points | 3x points | 3.5x points |
| Other Earnings | 1.5x points | 1.875x points | 2.25x points | 2.625x points |
When you’re ready to redeem your rewards, you will have the option to deposit them directly into a linked BoA or Merrill Lynch account, in addition to receiving a statement credit or purchasing gift cards.
Money is fungible, so even if your preferred points program doesn’t offer a direct deposit into your brokerage account, you might be able to engineer your own. If you redeem Chase Ultimate Rewards for cash back, you’ll have the option to deposit into a linked bank account. You can then take the extra step of moving the money to your brokerage to invest.
Similarly, if your card issuer offers the ability to redeem your points as a statement credit, you can simply take the money you’d set aside to pay the bill and invest it instead. The option to cash out your points directly to a brokerage account is relatively rare, but with a few extra clicks you can take just about any cash back rewards and invest them yourself.
Bottom Line
While cashing out your points generally locks in a pretty poor value, if you aren’t using them it’s better to get something than nothing. One thing to be aware of though is that cashing out your rewards might create a taxable event. Generally, you won’t pay taxes on credit card rewards and sign-up bonuses, but you should speak to a tax professional to see how this might play out for your specific situation.
Thanks for the question, Ben, and if you’re a TPG reader who’d like us to answer a question of your own, tweet us at @thepointsguy, message us on Facebook or email us at info@thepointsguy.com.
Featured image via Shutterstock.
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With great travel benefits, 2x points on travel & dining and a 50,000 point sign up bonus, the Chase Sapphire Preferred is a great card for those looking to get into the points and miles game. Here are the top 5 reasons it should be in your wallet, or read our definitive review for more details.
- Earn 50,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $625 toward travel when you redeem through Chase Ultimate Rewards®
- Chase Sapphire Preferred named "Best Credit Card for Flexible Travel Redemption" - Kiplinger's Personal Finance, June 2018
- 2X points on travel and dining at restaurants worldwide & 1 point per dollar spent on all other purchases.
- No foreign transaction fees
- 1:1 point transfer to leading airline and hotel loyalty programs
- Get 25% more value when you redeem for airfare, hotels, car rentals and cruises through Chase Ultimate Rewards. For example, 50,000 points are worth $625 toward travel
- No blackout dates or travel restrictions - as long as there's a seat on the flight, you can book it through Chase Ultimate Rewards
Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.
Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.
