When redeeming credit card points, it is generally best to get the maximum value possible for your points. After all, your points are currency just like cash, albeit unofficially and in different forms. When choosing your options, the rule of thumb is to stick with redemption options that provide at least 1 cent per point for your points.
What is the rule of thumb for redeeming credit card points?
The rule of thumb for redeeming credit card points is to aim for a redemption value of at least 1 cent per point. This means that if you can earn more than 1 cent per point, you are making good progress. If you are earning less than that, you are likely not getting good value from the deal, and it may be advisable to look for a different redemption option or even another credit card that offers better rewards.
How does the 1 cent per point rule work?
Some credit cards, such as the Citi Double Cash card, give you only one option for redeeming your rewards: cash back. These cards can offer good value. For example, the Citi Double Cash card offers 2% cash back on all your purchases, which is higher than the 1.5% cash back offered by most flat-rate cash back credit cards.
However, most rewards cards – especially those that operate on a points or miles system – provide multiple ways to redeem your rewards, including:
- Cash back
- Airline tickets
- Hotel stays
- Merchandise
- Gift cards
Each of these options may be more or less valuable, depending on the rewards program.
We tested the 1 cent per point rule by looking at the potential ways that most consumers might redeem points with rewards credit cards. We then generated an average point value across 220 rewards cards in our database. The average redemption rate for typical redemption options among rewards cards in our database is 1.20 cents per point, which exceeds the rule of thumb.
Overall, here is how much value you can expect to get – on average – if you choose each of these redemption options:
- Flight bookings: 1.57 cents per point
- Cash back: 0.97 cents per point
- Cash back (at a specific merchant): 1.49 cents per point
- Cash back (travel bookings): 1.22 cents per point
- Cash back (all categories): 1.13 cents per point
- Hotel bookings: 0.90 cents per point
- Overall: 1.20 cents per point
Some redemption options are particularly poor, such as merchandise and gift cards, so we do not include them in our database averages. However, you can check the point value for merchandise and gift cards by logging into your card’s rewards portal and doing some calculations.
Here are some examples of how this works, using point pricing from a popular travel rewards portal and the manufacturer’s suggested retail price:
- A Weber portable grill costs 25,000 points on the portal and retails for $69.99 on the manufacturer’s website. Calculation: (69.99 / 25,000) * 100 = 0.28 cents per point
- A Ring security alarm kit costs 57,500 points and retails for $199.99 on the brand’s website. Calculation: (199.99 / 57,500) * 100 = 0.34 cents per point
This is also how to calculate the point value for gift cards, although the process is a bit easier since you already know the cash value of the card:
- Card
- Amazon gift card worth $25 costs 10,000 points: (25 dollars / 10,000) * 100 = 0.25 cents per point
- Lowe’s gift card worth $100 costs 30,000 points: (100 dollars / 30,000) * 100 = 0.33 cents per point
As you can see, redeeming your points for goods and gift cards can yield you a value that is a small fraction of the value of other options.
How can I calculate the value of my points?
You can calculate the value of your points by dividing the value of your rewards (in dollars) by the number of points needed to obtain them.
The value of your points can be easy to calculate in some cases, like cash. For example, if it took 10,000 points to earn $100 in cash, your points are worth 1 cent each ($100 / 10,000 = $0.01).
But in other cases – like airline tickets – you may need to look up the value separately. For example, let’s say you want to book a flight to Las Vegas that costs 15,000 points. If you look up the ticket price on the airline’s website and find that tickets for the same flight are selling for $300, your points are worth 2 cents each ($300 / 15,000 = $0.02), which is a good deal.
Be cautious
Redeeming your points for at least 1 cent per point is a good rule of thumb, but it is not a rule you have to strictly adhere to. If you don’t have enough cash to take a vacation and you would derive a lot of satisfaction from going, it may be worthwhile to spend the points to go even if it’s not a great value on paper. In some cases, you may need to close a card immediately without worrying about the best redemption value – you need to use the points or you will lose them. Or you may not be concerned with the best option available – not everyone is able or interested in traveling, for example.
But in general, if you follow this as a rough guide, you will ensure that you are getting the most value from your points.
Source: https://www.thebalancemoney.com/rule-of-thumb-for-redeeming-credit-card-points-5116808
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