Are you wasting your hard-earned rewards points?
Using a credit card to earn rewards and maximize your purchases usually means racking up a balance of rewards points or miles. As retailers and airlines continue to team up with credit card issuers, there are more ways to redeem credit card rewards points than ever.
But what you do with those rewards determines if you’re actually getting the best value for them.
Forbes spoke with experts in the credit card rewards industry for their insight on how consumers shouldn’t use their credit card rewards points.
Here are three of their best tips:
1. Booking Short Flights (Usually)
If you’re a frequent traveler, paying for economy class tickets can start to add up. In this case, you might be tempted to cash in a couple thousand rewards points to get you to your weekend getaway—but it’s usually a waste of your points.
Redeeming rewards points or miles for short flights on cheap tickets won’t usually give you a good value redemption. According to ThriftyTraveler, almost every airline program sets award prices based on zones. A flight that might be longer in actual distance (the website gives the example of New York to Tokyo) will likely cost the same amount of miles than a shorter flight to the same zone (such as Seattle to Tokyo).
Following this same principle, a two-hour flight from Minneapolis to Washington D.C. will cost the same amount of miles on a much more expensive ticket for a cross-country trip from Los Angeles to New York City in most rewards programs.
Instead, save your miles for long-haul flights with premium experiences. The higher the ticket price, the higher the value of your points redemption will be.
For example, a round-trip ticket in Delta One (the airline’s version of a first class cabin) from New York (JFK) to Tokyo (TYO) in early March costs $10,570.25 or 93,000 miles plus $61.35 in taxes and fees. Paying in miles makes each mile worth about 11 cents, which is an excellent redemption value. As a general rule, if you’re able to get over 1.5 cents per mile in value, you’re doing pretty well.
That said, there are a few airlines that price award tickets based on the distance flown. British Airways is one airline with a distance-based award chart, and non-stop short flights in economy are generally the best redemptions in this program.
2. “Pay With Points”
A new feature is taking over online retailers: Pay with points.
Through the Pay With Points program, participating credit card companies make it easy for cardholders to redeem their points as credit toward their online purchases at select retailers. Chase Ultimate Rewards, American Express Membership Rewards and Hilton Honors programs all offer this redemption option.
It can sound like a good deal—use points for a few bucks off everyday purchases—but Pay with Points offers a terribly low point redemption value.
For example, redeeming 1,488 American Express Membership Rewards points for a $10.41 credit on Amazon was an option at the time this article was written. The value of that redemption comes out to less than a penny per point ($0.0069, to be exact). Chase Ultimate Rewards’ redemption value to pay with points isn’t much better; it offers about $0.80 for every 100 points redeemed, putting the value redemption still less than a single penny ($0.008).
Some airlines are also exploring new ways to use miles as currency, but it doesn’t give great value per mile. Delta Air Lines, for example, is testing a “pay with miles” feature for bags in select markets. Though the new program might appear to provide more flexibility for customers looking to use their points, spending miles to check bags only comes out to them miles being worth about 1 cent each.
Another doozy: Don’t use your hard-earned points to purchase gift cards. Similar to the Pay With Points program, it typically offers low redemption values. Gift cards can be convenient gifts, but your points will go a lot further if you redeem them for something else, like premium airfare tickets.
3. Redeeming Points as Cash Back on a Travel Card
If you have a travel credit card, using its points for travel will give you the highest value. If the card offers the additional option of redeeming your points as cash back, don’t fall for the trap. The points will only be worth a mere fraction of what they would be if you redeemed them for travel or transferred them to an airline partner.
“I’m as big a cash back fan as anyone, but certain cards are better suited for cash back than others,” says Ted Rossman, industry analyst at Creditcards.com.
Rossman gives the example of the Citi Premier card. While booking travel through Citi, the card yields 1.25 cents per point; redeeming those points for cashback, however, only yields 0.5 cents per point. The Citi Premier Card also offers the ability to transfer ThankYou Points to partners such as British Airways and Singapore Airlines.
If you need a solid cashback card, consider the Citi Double Cash card. This card offers a simple rewards structure of 2% cashback on all purchases, with no cap on how much cashback can be earned. Another great perk of this card: It has no annual fee, which means you’re essentially earning free money with every purchase.
Second-Guessing How to Use Your Points? Do This
If you’re thinking about redeeming your points but aren’t sure if you’re going to get the best value out of them, some easy math can help determine if you’re making a smart money move or not.
To determine how much your redemption will value your points at, use the following formula:
- Cost of service or good / Number of points needed = Dollar value per point
There are many travel websites and blogs floating around that detail their own point valuations, depending on how you choose to redeem the points. Not every source uses the same data or methods when calculating redemption values, so the definition of a “good” points redemption value can vary across the board. Experts do agree, however, that getting around 1.5 cents per point is a decent deal.
Don’t get too hung up on crunching the numbers, though. When it comes down to it, consumers should mainly focus on using their points to unlock experiences they might not otherwise be able to pay for in cash—and they should use their points sooner, rather than later.
“Oftentimes I see people get what I call points paralysis,” Serati says. “They get so fixated on getting the best deal that they end up never using them. Use your points! It is what they are ultimately for and over time they are going to get less valuable due to redemption devaluations.”
Even if you don’t have redemption paralysis, unearthing the best reward redemptions can be an unappealing task. Those who don’t want to devote time crunching numbers for the redemptions can turn to an award booking service instead. Award Magic, for example, will book trips with your rewards points and miles for a flat fee of $179 or $279, depending on how many destinations you’ll be traveling to. Book Your Award offers a similar service for around the same cost.
Overall, redeeming points and miles is a game—and if you learn how to play it right (or employ a service that will play it for you), you’ll get the most out of your redemptions.
