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I’m sure you’ve seen some amazing introductory offers out there when shopping for a new credit card. But how much is 50,000 points, really? And how much is one point or mile actually worth?
You see, not all rewards are created equal. Fifty-thousand points on one card might be worth less than 30,000 miles on another card. Keep reading to find out how you can calculate the value of your points and miles and maximize their value.
Points vs. Miles
Points and miles work in similar ways. Depending on the program and the rewards card, you’ll earn either one with each eligible purchase. Once you’ve compiled enough, you can redeem your points or miles for a variety of rewards.
So what’s the difference? Airline co-branded cards usually refer to “points” as “miles.” You can redeem them for flights, which will get the most value. Because they have no set value, it takes a bit more brainpower to maximize the value of your miles.
On the other hand, points often have given values, and they’re usually more flexible when it comes time to redeem them. Options might include cash back, gift cards, merchandise and travel purchases.
Do The Math
To determine your rewards redemption value, use this simple equation:
First, get the cash price of your reward and multiply that by 100. This will convert the dollar amount into cents. Then, divide that by the number of points or miles you need to redeem the reward. What you end up with is the per-point or per-mile value in cents.
Let’s say I want to book one hotel night. The cash price is $300, and the reward price is 60,000 points. How much is my redemption value?
Each point is worth $0.50 in the above scenario. As a rule of thumb, a per-point or per-mile value of $0.01 is average. Anything less is considered sub par. Anything more, you’ve got yourself a good deal.
Factors To Consider
The redemption value is just one part of the overall rewards value. You should also factor in the earn rate, reward fees, card costs and points transfer potential.
This rate is the amount of points or miles you receive for every dollar you spend. Some cards have a flat earn rate for every purchase. Others give you double, triple or more for purchases within bonus categories.
In the equation above, the cash price should include the full amount of the paid booking. That includes any taxes and fees, and excludes any added expenses as a result of booking the reward. For example, if you have to pay $50 to redeem for a hotel stay that normally costs $300, then you’re only getting a $250 value for your points.
To get a truer sense for the value of your points or miles, deduct these kinds of expenses from the cash price before you dive into the rest of your calculations.
Take the hotel night example above and factor in the $50 expense to book the reward stay. The per-point value drops from $0.50 to $0.42.
How much does your rewards card cost? This includes annual fees, interest and other costs that decrease the value of your points or miles. If you carry a balance, the interest charge will easily negate your rewards value.
Here’s a good rule of thumb: If you pay more in fees and interest than you earn in points or miles, get rid of the card. And by all means, pay your credit card balance – full and on time – every month.
Some rewards cards will let you transfer your points to a partner program. You might want to do a transfer if you need more miles to purchase a flight or if you want to take advantage of a better points or miles value. Before you do the transfer, it’s important to not only consider the transfer ratio, but also the new redemption value. You don’t want your points to lose their worth when you make the switch.
What They’re Worth
I came up with these figures by calculating what I could get – on average – from redeeming points or miles. Here’s how much they’re worth, according to reward program:
*Value in Euros (€0.02)
Final Thoughts
Maximizing the value of a rewards card may require some legwork, but it’s usually worth it in the long run. To get the most out of points or miles, make sure to meet the introductory offer requirements and pay your balance in full every month. Lastly, don’t spend more than you usually would just for the rewards. It won’t be very “rewarding” in the long run.
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