5

I want to use my credit card to put money on a pre-paid debit card, transfer it to my bank account, and pay off the credit card with that money so I can get points.

I read that transferring more than $10k into your bank account in less than a year like this can raise red flags.

What should I expect?

  • 21
    I think you'll find that loading a prepaid card with funds from your credit card will not provide "points". They thought of that already. – pants Feb 26 at 13:11
  • 2
    Buying gift cards (at grocery stores, pharmacy, etc) will still give you points, even the Visa/Mastercard/Amex branded cards. – JoeTaxpayer Feb 26 at 13:17
  • 1
    I doubt it will work. Those programs usually have stipulations to prevent that exact behavior. Usually you are required to carry a balance for certain amount of time in order to get the points. Check your user agreement before you do anything. – ventsyv Feb 26 at 16:02
  • 4
    Is a pre-paid debit card that you can get cash off of a thing? I've never seen something like that but maybe I just haven't looked. My experience has always been that once money is on a card (gift card, pre-paid Visa, etc), it stays there until spent. – JPhi1618 Feb 26 at 16:50
  • 1
    It's not hard to get points or cash back for buying prepaid cards. The tricky part, as far as I am aware, is getting the prepaid cards back into a bank account. – stannius Feb 26 at 16:58
15

Cash. The $10K law is for literal cash. An envelope of $100 bills, or bag of smaller denominations. Not movements of money, the kind that occur all the time. I am retired, and make regular transfers of over $10K. Direct transfers from broker (IRA/401(k)) to my local bank. No red flags.

That said, try your plan for one small cycle and let us know how it goes. The prepaid cards come with a fee, typically $5, which is 1% of the $500 gift card. But, the next step, getting the money back off, is also not frictionless. You can't easily just turn the card back to cash to deposit.

You are on the right track to maximize card points, however. If/when you see a deal which offers a bonus or large cash back on Pharmacy or Grocery stores, this may be the path to take. But you'll be left with a stack of these cards to use for your natural purchases for the next months.

(Anecdotally, some time ago, a bank offered a credit card with a 90 day period of "10% cash back on grocery store/pharmacy purchases". I purchased $50K worth of gift cards, 100 cards with a value of $500 each, and got $5000 cash back for doing so. There was a $5 fee per card, for a total $500 cost of the transaction.

We then used the cards over about 18 months for normal spending. By the time I exceeded $30K, the bank pulled the offer. No new customers would get this deal. But still honored their 90 days with me.)

  • 10
    There's a card doing a 10% back at grocery stores promotion in Canada right now, but they limit it to $2000 spent, so $200 back. They've probably heard of you. – Paulpro Feb 26 at 17:30
  • 10
    "No new customers would get this deal", this is why we can't have nice things. – IEatBagels Feb 26 at 19:13
  • I'm a bit confused on your last paragraph. "I purchased $50K worth of gift cards, at a cost of $500 ($5 ea) and got $5000 cash back for doing so." It makes sense that you got 5000$ back, for the cash back, but what I don't understand is the 50k worth of gift cards at 500$ / 5$ each? – Rietty Feb 26 at 20:01
  • 7
    The fee per card was $5. So I lost $500 in the purchase, but got $5000 in reward/ cash back. (I just edited to clarity.) – JoeTaxpayer Feb 26 at 20:08
  • 1
    updated if anyone would like to re-read. – JoeTaxpayer Feb 27 at 17:50
2

TLDR: Just don't let it look like you're structuring.

The $10,000/year thing isn't that. The $10,000 is per transaction. There's no "per year" requirement, but there is an "over a period of time" thing because of structuring. Structuring is when you evade the $10,000 limit by breaking a large deposit into a series of smaller deposits, say five deposits of $8000 each made on 5 days.

So the banks and Feds care about patterns of deposits that look like structuring. If your deposits are far apart, say every 2-6 weeks and of varying amounts, that won't raise any red flags. If you deposit between $2000 and $8000 every day for years, under the business name A1A Car Wash, they're not going to care about that, it's obviously a business.

That said, the government is on the watch for other ways to launder money; i.e. Convert cash into deposited funds without drawing notice to oneselves. If you could have also bought those gift cards for cash, then it will appear to banks as if you did buy them for cash and are now laundering. They will not know that you did not pay cash and did charge them on a credit card.

However, they will not care if the amounts of money fall substantially under $10,000 over a several-month period. Nobody cares about money laundering at such a small scale; there would be 1000 other ways to do that. E.g. Just pay your rent with cash.

  • 4
    For a car wash to make $8000 every day it either needs to be very busy or have a 99.1% chemically pure cleaning agent. – Paulpro Feb 26 at 17:27
  • 1
    @Paulpro It depends on how many branches the car wash has. – glglgl Feb 26 at 17:32
  • 1
    Related, when I worked as a cashier at Home Depot, there was a story about a guy, who upon hearing that his drawer could be off by up to $5 without consequences, pocketed $4.95 out of it every day (hourly pay was about $8). He got fired in a hurry. – Draco18s Feb 26 at 17:55
  • 1
    @glglgl That was a subtle Breaking Bad reference, to match the one in my answer. – Harper Feb 26 at 18:01
  • I just want to point out that the act of breaking your deposits into smaller deposits to avoid the reporting limit is called structuring, not smurfing. Smurfing is a form of structuring, but refers to getting other people to deposit the money for you. – C Henry Feb 26 at 18:22

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.