If you want to get more value from your rewards cards, don’t just look at the number of points or miles a credit card offers. It’s worth your time to also look at how much those points are really worth. Here are five things you should know when comparing reward programs.
If you want to get more value from your rewards credit cards, don’t just look at the number of points or miles a credit card offers. It’s worth your time to also look at how much those points are really worth.
Calculating the value of a rewards point can help you figure out which cards aren’t really as lucrative as they seem. It can also help you pick out the rewards purchases that are worth spending points or miles on – and which ones you’re better off purchasing in cash.
Here’s what to keep in mind when comparing credit card rewards programs.
1. The value of a rewards point may change, depending on who’s issuing it
Unfortunately, there is no universal system for valuing credit card rewards points. That can make it tough to compare cards.
Rewards points given to you by one card issuer, for example, may be worth a little over a 1 cent each, while points awarded by another may only be valued at half that amount.
The value of the same credit card rewards point could also change, depending on how you decide to use it.
For example, an issuer may assign more value to a rewards point that you redeem for travel, but less value to a different type of rewards purchase, such as gift cards or merchandise. Similarly, it may require a certain number of points for one type of gift card and a larger number of points for a different one.
An issuer could also change how it values rewards points and miles at any time.
Capital One, for example, recently made waves when it slashed the value of Venture and Spark miles that are redeemed for non-travel related purchases. According to Marketwatch, cardholders with a Venture or Spark Miles card will now have to spend significantly more miles to purchase certain types of gift cards.
2. Expect to get at least 1 cent back for every point you spend
In general, you’ll find that many – if not most – rewards credit cards value their rewards points at about a penny each (and sometimes slightly more). So, for example, if you earn 10,000 rewards points, you can redeem those points for a gift that’s roughly worth $100.
But a point valuation of essentially 1 cent for every dollar you spend isn’t universal. An issuer may ask you for 12,000 rewards points in exchange for a $100 gift card (thus causing your points to only be worth $.008 each). Or it may ask you for 14,000 rewards points in exchange for a $100 camera (causing your points to only be worth $.007 each).
Similarly, rewards you use for merchandise, charitable gifts or directly at checkout are often worth significantly less than rewards you trade in for gift cards or travel.
Since there’s no set system for valuing rewards points, issuers can value rewards points any way they want. That can make it tricky to compare rewards programs and make the most of the cards you already own.
3. To get the most from your rewards cards, don’t be afraid to do some math
Before you settle on a new card or rewards purchase, pull out your calculator and check whether the number of points an issuer is asking you to spend is reasonable, compared to other cards or possible rewards purchases. You may find it takes significantly more points to buy a $500 airline ticket from one issuer than it takes to buy the same amount of rewards travel from another.
To calculate how much value you’re getting out of a rewards purchase, divide the total number of points or miles a card issuer is asking you for by the value of the purchase you’re trying to redeem. For example, if you’re purchasing a $400 plane ticket for 35,000 miles, you’ll divide 35,000 by 400.
If you can, compare the rewards values different issuers are offering and think carefully about the types of rewards purchases you’re most likely to make.
If you prefer gift cards to travel, you’ll want to avoid a card that devalues points redeemed for gift cards. Similarly, if you’re angling for a free long distance flight, you’ll get more value for the money picking a card that values points redeemed for travel at a significantly higher rate.
See related: Do the math to compare reward points’ values
4. Be suspicious of cards that offer an unusually large number of rewards points
When it comes to rewards points, if it seems too good to be true, it probably is.
If you see a card that offers an unusually large number of rewards points in exchange for minimal spending, do some math before you get too excited. Chances are high that those points are worth just a fraction of the value of the average credit card rewards point.
Many cards offer an inflated rewards rate that, at first glance, seems like a stellar deal; but they frequently require a huge number of points to buy anything of value.
Before you apply for a card that seems unusually lucrative, check out the card’s redemption page. Card issuers don’t always make this information public, but some do. If you can, look at how many points it costs to purchase something, such as a gift card or airline ticket, and compare it to the actual value of the purchase.
You may also be able to get more intel on how a particular issuer values their rewards by checking out the reviews on a third party site, such as CreditCards.com.
5. You’ll often get the most value out of your rewards by redeeming them for travel
In general, you’ll find that points you trade in for travel are worth significantly more than points you use for other types of rewards purchases. That’s especially true for travel cards that encourage users to spend their points on free airfare and other travel purchases.
Some cards even offer a redemption bonus when you use points to book a trip. For example, the Chase Sapphire Preferred Card offers a 25 percent redemption bonus when you redeem your points for travel using the Chase Ultimate Rewards portal, while the Chase Sapphire Reserve offers a 50 percent redemption bonus. As a result, Ultimate Rewards points that are used for travel may be worth as much as $.0125 to $.015 each.
Rewards experts have also found that trading points in for luxury hotel stays or transferring points to airline loyalty programs can be an effective way to make the most of your rewards points.
The Points Guy, for example, keeps an ongoing chart of estimated redemption values for cardholders who are looking to maximize their return. Maximum point values for many cards are often well above a penny each thanks to generous travel redemption programs.
Bottom line: There’s no guarantee when it comes to credit card rewards points; so it pays to be cautious and do your research before you redeem the points you’ve spent so much time collecting.
It’s also a good idea to calculate the value of a credit card rewards point before you apply. That way, you can be confident you are picking the best card for your spending.