Calculating the value of a bonus point can help you understand which cards are actually not as profitable as they seem. It can also help you decide which bonus purchases are worth redeeming points or miles for and which are better for cash purchases.
When comparing credit card rewards programs, keep the following in mind:
1. The value of Reward Points may vary depending on who issues them.
Unfortunately, there is no universal system for accruing bonus points on credit cards. This can make it difficult to compare cards.
Reward points given to you by one card issuer, for example, might be worth just over 1 cent each, while points given by another issuer might be half that amount.
The value of the same Credit Card Reward Point can also change depending on how you choose to use it.
For example, the issuer might assign a higher value to a reward point you use for a trip, but a lower value to another reward purchase, such as gift cards or merchandise. Similarly, a certain number of points may be required for one type of gift card and more points for another.
The issuer may also change the way points and miles are earned at any time.
Capital One, for example, made a splash when it cut the cost of its Capital One Venture Rewards credit card and Capital One Spark Business Miles when used for non-travel purchases. Cardholders with a Venture or Spark Miles card must spend significantly more miles to purchase certain types of gift cards or use them as statements. Capital One Miles are one of the most flexible reward currencies available, but you won’t get as much value from these rewards depending on how you use them.
2. Expect to earn at least 1 cent for every point spent.
In general, you’ll find that many, if not most, bonus credit cards value their points at about a penny each (and sometimes a little more). So, for example, if you earn 10,000 Reward Points, you can redeem those points for a gift of around $100.
But a scoring of 1 cent for every dollar spent is not universal. The issuer can ask you for 12,000 reward points in exchange for a $100 gift card (thus only worth $0.008 each). Or he might ask you for 14,000 Reward Points in exchange for a $100 camera (making them only $0.007 each).
Similarly, the rewards you use for merchandise, charity gifts, or directly at the checkout are often worth significantly less than those you redeem for gift cards or travel.
Since there is no established system for scoring bonus points, issuers are free to do so at their own discretion. This can make it difficult to compare reward programs and make the most of the cards you already have.
3. To get the most out of your bonus cards, don’t be afraid to do the math.
Before choosing a new card or rewards program, get your calculator out and check if the amount of points the issuer is asking you to spend is reasonable compared to other cards or possible rewards purchases. You may find that it takes significantly more points to buy a $500 ticket from one issuer than it does to buy the same amount of reward tickets from another.
To calculate how much value you get from a bonus purchase, divide the total number of points or miles your card issuer is asking for from you by the value of the purchase you are trying to redeem. For example, if you buy a $400 plane ticket for 35,000 miles, you would divide 35,000 by 400.
Compare the value of rewards offered by different issuers and think carefully about the types of reward purchases you are likely to make.
If you prefer travel gift cards, you should avoid cards that devalue the points you redeem for gift cards. Similarly, if you’re looking for free long-haul flights, you’ll get more bang for your buck by choosing a card that values the points you use for travel at a significantly higher rate.
4. Be suspicious of cards that offer an unusually high amount of bonus points.
When it comes to bonus points, if this seems too good to be true, it probably is.
If you see a card that offers an unusually high amount of reward points in exchange for minimal spending, do some math before you get too excited. Chances are high that these points are only worth a fraction of the cost of an average credit card reward score.
Many cards offer an inflated reward rate that seems like a stellar deal on the surface, but it often takes a huge amount of points to buy anything of value.
Before you apply for a card that seems extraordinarily profitable, take a look at its redemption page. Card issuers do not always make this information public, but some do. If you can, see how many points it costs to buy something, like a gift card or airline ticket, and compare it to the actual cost of the purchase.
5. Often you get the most out of your rewards by trading them for travel.
Typically, you will find that the points you redeem for travel are worth significantly more than the points you use for other types of rewards purchases. This is especially true for passes that encourage users to spend their points on free flights and other travel purchases.
Some cards even offer a redemption bonus when you use points to book a ride. For example, the Chase Sapphire Preferred Card offers a 25% bonus when redeeming points for travel through the Chase Ultimate Rewards portal, while the Chase Sapphire Reserve Card offers a 50% bonus. As a result, Ultimate Rewards points that are used for travel can be worth between $0.0125 and $0.015 each.
Rewards experts have also found that redeeming points for luxury hotel stays or transferring them to airline loyalty programs can be an effective way to make the most of your rewards. Thanks to generous travel redemption programs, the maximum points for many cards are often well over pennies for each.
bottom line
There are no guarantees of what you’ll get when it comes to credit card reward points, so it pays to be careful and do your research before using the points you’ve spent so much time collecting.
It is also recommended to calculate the value of Reward Points on a credit card before applying. This way you can be sure that you are choosing the best card that suits your spending.
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The editorial content on this page is based solely on the objective judgment of our contributors and is not based on advertising. It was not provided or ordered by credit card issuers. However, we may receive compensation when you click on links to our partners’ products.