When it comes to credit card rewards programs, either those run with points or those run with frequent flier miles, you have to spend money to make money. One way to game the system is to spend money on money. While this trick would work with gold (although you lose some- gold is sold above its spot price), it’s also an open secret that the U.S. Mint offers Direct Ship coins, payable by credit card. To sweeten the deal further, they will even pay for domestic shipping.
Why Would They Do This?
The goal of the program is to increase the circulation of dollar coins. As stated in a Wall Street Journal article on the subject, coins last longer than dollar bills- making them
- Coin collectors buy coins like this silver dollar. (Kevin Dooley)
cheaper over time. It is therefore in the United States’ best interest to convert as many dollar users to dollar-coin users, as the life of the coin vastly outstrips the paper dollar. In fact, the article even states that many of these coins are purchased legitimately by change-heavy establishments like laundromats and car washes. I’m sure stamp machines are also getting their fair share.
The Mint also has some legitimate inflation fighting powers – if they can convince coin collectors to purchase coins. With every new coin issue, certain coin collectors will want to have the coin in their collection. By adding coins to a collection, the coins are taken out of circulation, effectively parking currency which won’t be spent. Many limited edition coins are sold above their actual money price, and the inflation busting process continues.
The CC Game, Unintended Consequences, and the Path Around Credit Card Agreements
How do you take advantage? Simply buy coins on your rewards credit card, and deposit them at your bank. To take it a step further, pay off your credit card with the bank where you deposited the coins. You’ll collect a tiny bit of interest from the bank in the process and earn rewards for the credit card purchase. As Tom Jurkowsky, spokesman for the U.S. Mint, says in the WSJ article, it’s not illegal. It also certainly wasn’t the aim of the program to facilitate this behavior!
Want to take it a step further? You could theoretically use this program to get around cash advance charges on your credit card. Currently, these purchases from the Mint will ring up as normal credit card transactions. To perform a cash advance you would buy coins, then either deposit them to have cash available, or spend the dollar coins (well, you’d probably just deposit them…). This gives the credit card companies an incentive to crack down on this purchase too (to get the higher fees cash advances bring) – but not as much as the Mint. Remember the credit card companies make money on every transaction, coin purchasing not excepted.
Certainly the Mint will take steps to prevent people getting this unintended benefit in this future. Already, it appears they are canceling certain orders which appear to be participating in this method. This is good; the Mint is losing money on credit card transactions and shipping on every order. This money comes from the taxpayers: you and me. Plus it seems like a lot of hassle to make 1% on a rewards card- boxes form the Treasury certainly don’t come with any security. What do you think?
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