As we’ve talked about collecting points and miles, and some basics in how to redeem them for value, it brings up an interesting point. When using a credit card that can earn points or miles, there is an opportunity cost, typically the 1-2% cash back one could normally get from those purchases by using a different card. So what are the points you’d be earning instead worth? Is it a better deal? For that matter, what are these credit card signup bonuses actually worth?
So let’s take a brief moment to examine what points and miles are worth. Please note that these are all averages; after all, if it costs 20,000 Hilton Honors points to book a room at a hotel, and sometimes that room costs $100 and sometimes $180, that represents a serious difference in monetary value, though the actual value – the room for a single night – remains constant.
Note: we will get into the value of transferable points like Chase Ultimate Rewards and AmEx Membership Rewards next week, since these are a tad more complicated.
Let’s start with hotel points. For the most part (there’s a major exception), hotel points are worth anywhere from .5 to .8 cents apiece. It is hard to get really insane value these days from most hotel chains, as many have tied points costs into actual pricing, rather than set points tiers. I find that – especially when using a 4th or 5th night free on points stays – I can sometimes find value of over $.01 per. But normally, anytime I can get .7 cents or so in value, I am happy. So a credit card that earns 3 Hilton Honors points per dollar spent, is roughly the equivalent of 1.5-2.4% “cash back” if one thinks of that value. The exception to this valuation is Hyatt, which averages well over 1.5 cents per point, but is also much more stringent on earning rates.
Airline mile valuations are all over the map, but I use 1.5 cents as a baseline for the three legacy US carriers (American, Delta, United). However, especially when booking international one-way flights, the award values can look astronomical, coming in as high as $.08-.09 or even higher (and much more on business or first class due to their exorbitant cash prices)! This is one of the things I love about points/miles: one way tickets can be ridiculously expensive (like flying into London and out of Rome), but with miles, that doesn’t make a difference as most reward tickets are booked in one way segments. So if I have a choice of 2% cash back or 2 Delta SkyMiles, I’ll choose the latter, as I’ll normally get much more value from that. For a single mile per dollar, I might take the security of 2% cash instead.
While we are talking about valuations, it is also important to recognize that, just as inflation makes the value of holding money lessen over time, so too do points and miles lose value over time as the airlines and hotel chains are able to arbitrarily change costs at a moment’s notice. In last week’s example of booking a dream vacation, we talked about flights to Paris for 30,000 miles each way during peak season on American. It is possible that tomorrow American might up that to 35,000, and deal with angry frequent flyers. So it is always better to find good value for your points/miles and use them sooner than later.
If you want a full list of more scientifically produced valuations for all of the types of points and miles out there, The Points Guy updates his monthly, and I’ve found them to be pretty good.
I hope this gives you a little more confidence in choosing which “currency” to earn with your purchases, and ways to judge if your points redemptions are a decent value.
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