How Much Are Your Points Really Worth?
Tl;dr: there’s more to the value of points than what an award would cost in cash.
Let’s say you read a blog (like this one), about a big 100k-point offer on a credit card. And you read somewhere that the bonus “can get you over $2,000 in value.” Now you’ve got those points in hand, and you want to make sure you don’t squander them on bad redemptions. So how do you make sure you don’t squander those points? How do you get that $2,000+?
How points are usually measured: face value
If you see someone talking about their redemption value, they're probably using the face value formula. It’s pretty simple:
Face Value per Point = (Reward Value – Taxes & Fees) / Points Used
For example, a $600 flight ticket can be redeemed for 50,000 airline miles and $50 in taxes and fees. FVPP = ($600 – $50) / 50,000 = 1.1¢ per point
Most travel and credit card sites use this method. It has the advantages of being simple, objective, verifiable, and consistent. Some sites offer point “values” based on it. Some are more objective, like Nerdwallet (which samples data points) or AwardWallet (which identifies values based on redemptions logged by users in its system). Others are a bit more vibes-driven, like TPG’s (although they use data too).
But regardless, these values are almost always based on the cash cost of the redemption — which makes sense… to a point.
The problem with face value
The great thing about looking at FVPP is that it lets you make a snap judgment about a redemption. If Amex points are “worth” 1.8¢ each, then a redemption with an FVPP of 1.2¢ per point might be a waste, while a redemption with an FVPP of 2.5¢ seems like a big win.
Unfortunately, comparing the cash price to the points used isn’t always as helpful as it seems. In fact, it can often be misleading—and sometimes even cost you real money.. Here are just a few examples.
Let’s say you have two 4-day trips planned in two different cities. Each city has a Holiday Inn Express bookable for $200 cash or 40,000 IHG points, and you can book one with points. Whichever one you book, you’d get 0.5¢ per point in FVPP. If the $200 hotel in City 1 is the cheapest decent option available, but in City 2 you could book a sweet $120-per-night Airbnb, you’re not really getting $200 in value in City 2–in fact, you’d lose $320 in actual money by using the points in City 2 rather than City 1. You just wouldn’t know it by looking at the face value per point.
Or what if you could book an $800 flight to Europe for 40,000 points and $200 in fees? That could represent solid value. But if a competing airline offers a comparable flight to the same destination at the same time for $500, the value of your redemption probably isn’t really $800. Especially if you have the flexibility to fly when there are cheaper flights available. And certainly not if you’re flexible on destination. If you’d be happy flying to any European city for $500 in cash, that’s your true baseline — not the $800 retail price of the points ticket. And if you burn more points than you needed to on that flight, you might end up paying for your next trip with your bank account instead of your points.
Does this mean I have to do math? And research?
Not necessarily! With a program like Bilt, for example, you can redeem points for 1.25¢ each—nearly guaranteed to be their actual value, or close. Each bank’s points currency has its own guaranteed easy-value options, usually in the 1.0¢ to 1.25¢ per point range. Any lazy sloth can get that. And if you’re not getting more than that, why bother?
But you can get more value—even if it’s not quite as dramatic as the face-value hype. And if you want to do it without breaking out a spreadsheet, we’ve got you covered. In our next post, we’ll show you how to make sure you’re getting real value—and introduce a handy calculator to make it easy. Stay tuned.
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