When weighing reward redemption possibilities, this simple calculation will help you derive relative points values.
Nobody wants to squander points. We all want to receive the most value from our rewards, but it also seems weird to pay cash for something (such as flights, hotel stays or gift cards) that you could acquire by redeeming points.
On one extreme, you could hold onto your points and use them only on rewards that are the most valuable. On the other extreme, you might redeem your points even on low-value rewards to avoid shelling out cash.
How do you know what to do? A little bit of math can help.
Run the numbers to calculate points values
One of the ways to help determine if cashing in your reward points is a good value is to figure out how much your points are worth compared to the cost to purchase the reward.
You do this by dividing the dollar amount that the reward is worth by the number of points you need. That gives you the number of cents per point – which you can then use as a yardstick to measure the value of that reward against others.
Let’s look at an example. Let’s say you have used an airline credit and have 40,000 frequent-flyer miles.
You’re thinking about two itineraries: a round-trip flight with one stop each way that costs $250 round-trip or 25,000 miles, or a nonstop flight that costs $500 round-trip or 40,000 miles. In the first itinerary, $250 divided by 25,000 miles equals 0.01, or 1 cent per mile. In the second itinerary, $500 divided by 40,000 miles equals 0.0125, or 1.25 cents per mile.
Calculating points per mile: Do the math
|Ticket cost ($)||Ticket cost (miles)||Value calculation|
|$250||25,000||$250 \xf7 25,000 = $0.01, or 1 cent per mile|
|$500||40,000||$500 \xf7 40,000 = $0.0125, or 1.25 cents per mile|
When you do the math, the second itinerary is a better value for your miles. Calculating point values for rewards won’t always determine what you should do, but it is helpful information.
For example, you could always choose to take that first flight because it costs fewer miles. Or you could pay cash for the trip if you are dissatisfied with the value of miles here and wanted to hold out for a more valuable redemption.
What you do with your miles is a personal choice and will depend on how many miles you have. It’s best not to hoard them.
How I weigh my rewards redemption options
Personally, I entirely avoid redeeming rewards for less than 1 cent per point. I prefer not to redeem my rewards for less than 2 cents per point.
If I can find a redemption for 2 cents per point or more, I consider that a great deal. You can often find those on coast-to-coast nonstops, flights into small U.S. airports, and on summer flights to Europe.
Business- and first-class seats often provide solid value, too, since the cash prices for those seats are so high.
You also can run the numbers to see why redeeming reward points for merchandise or gift cards tends to be a worse deal than redeeming for flights.
On a per-point basis, merchandise tends to be less valuable. But if you want to do your holiday shopping by redeeming points instead of paying cash – or ringing up a lot of new charges on cards, that obviously saves cash and avoids new debt.
If there is no traveling on your horizon, redeeming points for gift cards or merchandise can make sense.
Redeeming points is a personal choice
Comparing possible rewards like this helps you see relative value, but the real value of your points can’t be derived by a mathematical formula. It all comes down to what travel, merchandise or experiences those points can unlock are worth to you.