Q&A: How do redeemed travel points get refunded if I cancel?
Most programs will issue a refund in points, but some will give you cash back
Ask a question.
Dear Cashing In,
I recently used points from my American Express business card to book a hotel for personal use. I immediately canceled the booking and later discovered that the credit to my card is not in points, but in cash. Can I use the card for the amount of the credit to book another hotel? – Barbara
There are a few different ways credit card reward programs convert your points into actual travel reservations.
Most people are probably familiar with the most common way, which you would find in an airline’s frequent-flyer program or a hotel’s loyalty program. With this method – in which the company with the rewards program controls the inventory of its plane seats or hotel rooms – the airline or hotel group simply deducts the points from your loyalty program account and creates a reservation in its system.
This is also the way it works with credit cards tied to particular airlines and hotel chains.
But with your example of American Express, the company does not control the availability of airplane seats or hotel rooms. Instead, it aggregates on its website the inventory from many different providers. When you type in a city, for instance, the AmEx site will show you many hotels from different chains, and what the prices are in dollars and American Express points.
This offers you a lot of flexibility, but the way the company converts your points to a hotel booking is more complicated.
When you select a hotel on the American Express site, you have the option to pay with dollars or points. For example, say you want to book a room in early December at the Embassy Suites at the Nashville airport. The American Express portal says it is available for $149 a night, or 21,331 points.
If you choose to pay in dollars, the $149 charge goes on your card, just as it would if you had booked directly with the hotel. When you use the American Express service called Pay with Points, though, the cost of the hotel room ($149) also gets charged on your card in dollars. Then American Express takes the extra step of debiting the Membership Rewards points from your account (21,331 of them) and issuing you an instant statement credit equal to the dollar amount charged for the room on your card (a $149 credit).
At that point, you are out no money for the room, but American Express has debited you the 21,331 points. You are essentially paying in advance for a hotel room.
Incidentally, before you book that room, make sure you understand the cancellation policy, because sometimes “prepaid” hotel rates are nonrefundable. (In this example, the American Express site says this rate at the Nashville hotel allows you to have a “flexible cancellation.”)
If you need to cancel the room, call American Express, since you used its online agency. You might also be able to cancel directly with the hotel.
Assuming the policy allows for the cancellation of the room reservation, the hotel should credit your card for the cost (in dollars) of the room. That’s a $149 credit in this case. So, at the end of all this, you wind up with fewer American Express points, but overall you have a $149 statement credit in dollars (in addition to the original charge and credit you received when you booked the room).
That statement credit is not restricted, so yes, you may use it to book another room or for any other expense.
This might sound like a way to convert American Express points to cash, and it is. But keep in mind that the value of using American Express points for hotels is usually between 0.65 and 1 cent per point, or less than 1 percent. In the Nashville hotel example, it’s about 0.7 cents per point. You’d do better with most cash back cards.
Meet CreditCards.com's reader Q&A experts
Does a personal finance problem have you worried? Monday through Saturday, CreditCards.com's Q&A experts answer questions from readers. Ask a question, or click on any expert to see their previous answers.
- Is it worth it to transfer Hilton hotel points to American Airlines? – If you want to transfer hotel points to an airline to get a free flight, check the transfer ratio first to make sure you're not losing value ...
- Which credit cards should I carry in my wallet? – If you have a stack of credit cards and are trying to decide which ones to keep in your wallet, here are some ways to decide which to keep and which to stash ...
- With Citi Costco card, which gas stations earn 4 percent cash back? – You can earn rewards most places you fill up, with a few exceptions ...