Before I get to today's post, I want to say that I am back from Europe, and there is a LOT of travel hacking to catch up on. There's a fair amount of hacking that can be done wherever you are in the world (a post that is in the works), but many techniques require being physically present in the States: CVS hasn't expanded to Europe yet!
Most excitingly, there's a new, game-changing hack that I have now confirmed works and which will double or triple the amount of manufactured spend that even a casual travel hacker is able to generate each month. On Monday I'm going to lay out the basic details of the hack, then provide more information and analysis throughout the week leading up to the long weekend. I hope that all my readers and especially my always very spirited commenters will weigh in with their thoughts on the pros and cons of this new technique. So that new technique is coming Monday.
Today I thought I would share the results of my research into a question that has interested me for almost as long as I've been travel hacking: what's the deal with USPS money orders?
Rewards-Earning Debit Cards
The disappearance of rewards-earning debit cards is a well known and much-observed phenomenon. The story goes that back in the days of the finance bubble, before banks came under stricter regulatory and legislative scrutiny, banks partnered with airlines to issue co-branded debit cards, much as they issue co-branded credit cards today. Merchants were forced to enter into agreements with the credit card networks that required them to accept credit cards and debit cards on equal terms, while paying wildly different amounts depending on the card used by their customers. In other words, while it made a big difference to the merchant whether you were paying with a high-cost, premium card like a Chase Sapphire Preferred or a low-cost non-rewards card, the merchant had to accept them on equal terms. Debit cards were just another piece of that ecosystem.
After the 2007-2008 financial crisis, when there was renewed interest in financial regulation, retailers brought the following problem to the attention of Senator Dick Durbin: while credit cards involve a credit risk to the card issuer (the risk that the customer will default on his debt), debit cards don't have that credit risk, since the money is instantly debited from the customer's bank account. But merchants still had to pay the card issuers not just for the cost of running the card network, but also for the (non-existent) default risk! So Senator Durbin introduced his amendment to the Dodd-Frank financial reform act, which set debit card swipe fees at a low, fixed level. That's the law of the land today.
USPS Money Orders
Like lottery tickets, USPS money orders have always been for sale only by cash or debit card: you have to use cash to buy cash equivalents. In other words, you can't walk into a post office and buy $1,000 in money orders for $1.60 using a rewards-earning credit card (not that people haven't tried).
However, the existence of rewards-earning debit cards created a problem, which persists today: should a bank award miles for buying a money order, when the cost per mile may even be lower (for example, 0.32 cents per hyper-valuable Alaska Airlines mile using the Bank of America Alaska Airlines debit card) than the price the bank itself pays when it buys those miles from the airline?
This old Ron Lieber article in the Wall Street Journal takes the view that basically, it's the bank's problem. Which it certainly is – until the customer gets caught. Buying and depositing money orders on the scale required to make this technique worth your time is certain to be detected by your debit card issuer. That means you'll need to open additional bank accounts, and diligently make sure that you meet the requirements of each of those accounts to waive monthly account maintenance fees. Moreover, one of my banks takes over a week to clear money order deposits, which makes it almost impossible to turn around the money quickly enough to show a clear profit. I've got better things to do.
PIN-based prepaid debit cards
Naturally, the next solution to this puzzle is to use, instead of using a rewards-earning debit card, a PIN-based prepaid debit card which you've loaded using a rewards-earning credit card. Take the US Bank Visa Buxx card: you can load it with $1,000 at a cost of $5. If you could then unload that $1,000 balance at a cost of $1.60, you'd pay a total of 0.66 cents per dollar of manufactured spend – not bad at all.
Likewise, unloading a MyVanilla Debit card at a cost of $2.10 ($1.60 money order fee, $0.50 transaction fee), would give you a total cost of 0.99 cents per dollar in manufactured spend. A bit on the high side, but terrific if it increases your volume substantially.
Unfortunately, it doesn't work.
When you buy a USPS money order, not only are you required to use a PIN-based debit card, but the transaction is processed differently than when you buy a box or envelop. The card issuers know what you're doing. The US Bank Visa Buxx card flatly doesn't work: I have never had any success buying USPS money orders in any amount (any commenters with a different experience are of course welcome to chime in on this point).
MyVanilla Debit cards do work, in the sense that they allow you to complete the money order purchase transaction. But when you check your online statement, you'll find that instead of a $0.50 transaction fee, you've been charged the $1.95 cash advance fee, bringing your cost per dollar of manufactured spend from 0.99 cents to 1.13 cents.
And that's everything I know about USPS money orders: they're more expensive than Walmart money orders, you're radically restricted in the kinds of cards you can use, and they arouse suspicion with your card issuer. That isn't to say there's no room for them in anyone's point-earning strategy; that's a decision you obviously have to make for yourself. But I don't bother using them in my own.
