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In the context of points/miles and other credit card rewards, ‘manufactured spend’ (MS) is short-hand for a variety of different methods that all revolve around spending money on a rewards-earning credit card on things that you can convert back to cash, and then using that cash to pay off your credit card balance.
Essentially, the aim is to generate as many points/miles (or as much cashback) as possible, while incurring as little cost (ideally zero) as possible.
With a bit of creativity, there are many ways to manufacture spend, but is it really worth the effort?
Some people, particularly in countries like the USA that have very lucrative credit card rewards, take manufactured spending incredibly seriously – putting £100,000s of spend through their cards every month.
In the UK, the situation is different. Since the interchange fees were capped a few years ago, non-Amex credit card rewards just aren’t particularly lucrative. For various reasons, it can be tougher to manufacture spend on an Amex compared to a Visa or Mastercard.
If I wanted to engage in MS, my current (non-Amex) options right now would be:
- 2 Hilton Honors Points per £1 on my free Hilton Barclaycard (no longer available to new applicants). I value Hilton Points at about 0.4p each, so that’s roughly equivalent to a 0.8% return.
- 2 IHG Rewards Club Points per £1 on my IHG Premium Card (which has a £99 annual fee). I value IHG Points pretty much the same as Hilton Points.
- 0.5% cashback on my free MBNA Horizon Card.
With a maximum return of 0.8%, I would have to be able to scale my MS to a very significant level to really make it worthwhile – £10,000 of MS would generate a maximum of just £80 worth of benefits.
The Virgin Atlantic Reward+ Credit Card is a more interesting candidate, given that it earns 1.5 Virgin Flying Club Miles per £1. I value Virgin Miles at 1p each, so would be generating a return of about 1.5%. There is a £160 annual fee to factor in as well though, so I’d need to MS ~£11,000 just to level that off (if we set aside the other benefits of the card for now).
Does manufacturing spend make sense?
I’m sure there will be a range of views on this in the comments, but I’m not really convinced that long-term MS is worth the effort and potential risks it involves.
Let’s take a ‘reasonable best case scenario’ as an example.
If you had a Virgin Reward+ Card, a credit limit of £10,000, and the ability to MS £120,000 worth of spend at zero cost each year, you could earn 180,000 Virgin Flying Club Miles per year. That’s worth about £1,800 – £160 for the annual fee = £1,640 ‘profit’.
That doesn’t sound bad if it’s really ‘free’ miles/money – but even if you know a (sufficiently scalable) zero-cost MS method, in reality there are still costs in terms of your time and through tying up money each month. There are also (at least) three different types of potential risk:
- Raising red flags with your credit card company – or worse. MS is completely legal, but the activities involved can look a lot like the sort of thing money launderers might do. Investigations could take a long time to be completed and might be stressful, even when you’ve done nothing wrong. During that period, assets could conceivably even be frozen. On the less dramatic end of the spectrum, the credit card company might just decide it doesn’t like what you are doing and ditch you as a customer – whether your relationship with that particular issuer matters much to you or not would depend on a range of factors.
- Messing up somehow. Everybody makes mistakes and when you are juggling large sums of money, those mistakes can be expensive. Imagine that you got your dates mixed up, or got ill, and didn’t pay off your balance on time. Alternatively, perhaps your money got tied down longer than expected somewhere in the MS process. Regardless of how it happens, the interest and fees for missing a payment on a £10,000 balance could wipe out a lot of your MS ‘profit’.
- Potential damage to credit score. One of the factors that helps make up credit scores is ‘credit utilisation’ – the proportion of your total credit in use. I wouldn’t personally worry too much about any long-term impact, but it’s something to be aware of.
There is a place for manufactured spend though…
The arguments I’ve made above are mostly in relation to long-term, quite intensive manufactured spend, where the main aim is the consistent accumulation of points/miles/cashback. For short-term specific targets, I actually think MS can make a lot of sense.
The classic example is if there is a spending threshold you need to hit in order to trigger the sign up bonus offered by a credit card. Sign up bonuses can be lucrative, but most cards require £1000-£3000 worth of transactions to be made within the first 90 days before they hand over the bonus. That isn’t always easy to do through normal spending, so being able to do a bit of MS can be useful.
Another example is if a card offers a benefit for hitting a specific amount of spend each year. The IHG Premium Mastercard, for instance, grants cardholders a free night certificate at any IHG hotel if they spend £10,000+ on the card in a year. A certificate like that is easily worth £250 – and that’s on top of the standard 20,000 IHG Points you would also earn from the spend. MS could be a very good of ensuring you hit the target in time, without wasting money buying things you don’t really need, or by tying up money for months bringing future necessary spend forwards (buying supermarket gift cards or whatever).
As regards the risks, the relatively small amounts of MS required each month to hit those sort of targets is much less likely to catch the eye of anyone who might take a dim view of it. Similarly, if you make a mistake, or your MS process takes longer than anticipated, it is much easier for most people to ‘float’ ~£500 for a while than £10,000. Credit utilisation isn’t likely to be an issue whatsoever when dealing with just £100s at any one time.
I think manufactured spend does have a place in the toolkit of points/miles collectors here in the UK. I’m just not convinced that the rewards are big enough to justify the effort and risk involved in really pushing it hard.
I would love to hear your thoughts though – let me know what you think in the comments.