Buying rewards points, even at discount, rarely makes sense
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Dear Cashing In,
I just saw on Southwest’s website that it is offering 40 percent bonus points when you buy 5,000 or more points. Is that a good deal? – Jennifer
From time to time, you will see deals like this. Sometimes, reward programs will sell their points at a discount. Sometimes, they will give you extra points for free when you buy a certain number. The details will vary.
In the case of Southwest, the airline had an offer on its website in January 2018 that read: “New year, new travels: Get a 40 percent bonus when you buy 5,000 or more points.” The offer expires today (Jan. 23, 2018).
Just remember that except for rare circumstances, buying points directly is almost never a good deal. When the price of those points goes on sale, it is not as horrible of a deal, but ... it is still almost never a good deal.
Calculating the difference between cash and points
Let’s look at how those numbers work in the case of this Southwest offer. Even if you don’t fly Southwest, it is still instructive to learn how poor these offers really are. You’re usually better off just paying money for a flight than buying points at any price they are being sold.
The short analysis is that Southwest sells its points at a cost of 2.5-3 cents per point, depending on how many you buy. But when you go to redeem them, they are worth closer to 1-1.5 cents per point – often less than half as much. Even with a 40 percent bonus, you’re still worse off than just buying the flight outright.
Let’s say you’re planning to fly from San Diego to San Jose in February, on Valentine’s Day. The cheapest fare is $49 or 2,304 points. But if you were to buy the points, 2,000 points costs $60, so you’re better off just paying $11 less ($49) for the flight.
Discount falls short
OK, you might say, well that doesn’t take advantage of the 40 percent bonus for buying 5,000 points or more. Fine.
Let’s look at the same flights but assume you want to fly business class. The fare on those flights is $243 or 25,560 points. But buying almost as many points – 18,000 points, plus 7,200 bonus points, for a total of 25,200 points – costs $495 – or $252 more than simply buying the business-class ticket.
You’d be a fool to pay more just for the sake of paying in points. You are not going to find an example where buying the points, even at a discount, is cheaper than just buying the flight directly.
There are some circumstances in which it might make sense to buy points. For instance, if you were just a few points short of the points needed for a free flight, and you didn’t want to pay actual money for the fare, then you might consider topping off your frequent-flyer balance by buying a small number of points. But remember that you are paying a premium for that.
Overall, it’s best not to get too excited about sales of reward points. They hardly ever make financial sense.
See related: Rack up extra reward points with gift cards
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