53. Deal or No Deal: How to Evaluate Points Redemption Value

Welcome to Point Me to First Class, the only show for employed professionals, entrepreneurs, and business owners who are looking to optimize their higher-than-average expenses to travel the world. I'm your host, Devon Gimbel, and I believe that your expenses are your greatest untapped asset if you know how to leverage them. Ready to dive into the world of credit card points and miles so you can travel more, travel better, and travel often? Let's get started.

Welcome back to the podcast everybody. Have you ever felt like you're doing points wrong because you're not booking the same, quote, high value redemptions that you see other people posting about? Have you ever run an award search, or many, and found potential travel options that you could use points to book but became paralyzed because you just didn't know if they were a good deal or not?

Are you scared of wasting your points so you just don't use them to book travel at all, even though you have hundreds of thousands or even over a million points saved up? If you can relate to any of these scenarios, you are not alone. This episode is for you.

Because today we are talking all things points redemption value, I'm going to teach you how to calculate exactly how much value you're getting from your points for a given redemption and how to know whether that's a good deal or not so that you can ditch the indecision and insecurity around using your points and start putting them to great use.

I also want to talk a little bit about some points redemption value controversies. Actually, that sounds very dramatic. It's really not that dramatic. It's mostly math. But there are conflicting opinions and a little bit of drama in the points travel world about how some of us, including me, use redemption value in the way that we talk about how much money points can potentially save you in travel.

So we're going to get into that. But first I want to cover what redemption value is, how to calculate it for those of you not familiar with that yet, why I think it's a valuable exercise to run when you're planning award travel even though some people say it's dumb as well as three ways you can use calculating redemption value to your favor when planning points travel.

I'm also going to touch on what a, quote, good redemption value is when using your points for flights or hotel stays and a couple of reasons why it might still be worth it to use your points for travel. Even when the options available to you have a, quote, bad redemption value. We are going to cover a lot of ground in today's episode. So let's get started.

First what redemption value even is. Simply put it is a measure of how much cash value you're getting from your points when you use a certain amount of points to book a specific aspect of travel. Whether that's an award flight or a hotel stay or using your points to book a rental car through your credit card travel portal. Redemption value is often expressed as, quote, cents per point. I.e. how many cents each of your points is worth when you use them for a specific redemption.

Generally, the higher the redemption value, the better in the sense that you're getting more cash value from your points at higher redemption values. Most of the time getting more cash value from your points is better. Why use 100,000 points to book $1,000 worth in travel when you could use 100,000 points to book $3,000 or $5,500 worth in travel or more.

Now calculating the redemption value of a potential award booking is fairly easy. I'm going to tell you how to do it and then give you a few examples so that you can see how this works in real life. To calculate the redemption value of a potential award booking, you need to know a couple of numbers to get started, three numbers to be exact.

The three numbers that you're going to be looking for in order to calculate the redemption value of a potential award booking are number one, the points cost of the award booking that you are considering. Either the number of points that are needed to book and award flight or the number of points that are needed to book a hotel stay.

The second number that you need to know is the out of pocket cash cost that you are going to have to pay in order to make your award booking using points, if any. Now if you're using points to book a hotel stay, oftentimes there won't be any out of pocket cash cost to make the booking itself. You can pay for it entirely using points.

But if you're making an award flight booking, there will always be some out of pocket cash component that you're going to have to pay for the taxes, fees, or airline surcharges if there are any on your award ticket. The out of pocket cash component that you have to pay on award flights can vary anywhere from between around $5 per ticket up to over $1,000 per ticket depending on what airline you're booking through and what class of service ticket that you are booking.

Third, you want to know what the cash cost would be of the specific flight or hotel stay that you are considering booking if you were to book it entirely with cash instead of using points at all.

For the sake of example, let's say that you're booking a one way business class flight from Miami to Paris. The cash cost of the flight to book entirely in cash is, let's say, $2,500. But you found an award flight that would cost 50,000 points and $230 out of pocket in taxes and fees to book.

So once you have those three numbers, here is how you're going to figure out the redemption value of that particular potential booking. You take the cash cost of the booking if you were to book it outright only using cash and subtract from that number the out of pocket cash component of the specific award redemption that you are considering.

In this example, you would take the cash cost of the flight itself, $2,500, and subtract the taxes and fees cost of the potential award flight, which is $230. $2,500 minus $230 comes out to $2,270. Now you want to take that number and divide it by the points cost to make that booking if you were going to use points instead of cash.

So in this example, the award booking costs 50,000 points. So we're going to take $2,270 that we just calculated divided by 50,000. That equals 0.0454. The last step is we're going to multiply that number by 100. That's going to give us the cents per point value of that particular potential award booking. So in this case, 0.0454 times 100 equals 4.54.

So if you were going to use 50,000 points and $230 out of pocket to book a flight that would otherwise cost $2,500 to book entirely in cash, the redemption value of that particular award booking would be 4.54 cents per point. Meaning that for this award booking, each one of your 50,000 points is worth 4.54 cents in value.

So now you know how to calculate the redemption value of a potential booking. But how do you know whether that value is good or not? How do you know if 4.54 cents per point is a screaming deal or if you're wasting your points on this booking and are better off saving them for something else? Now we will get to that in a minute. But first let's walk through one more example of calculating redemption value for another scenario.

In this case, let's look at a theoretical hotel booking using points. Let's say that you've had your eye on staying at the Park Hyatt St. Kitts after hearing me rave about it on episode number 50 of the podcast, you want to stay three nights at the Park Hyatt St. Kitts, and you see that you could use 105,000 Hyatt points to book that stay with zero out of pocket cost for the booking of the hotel room itself.

The same standard room would otherwise cost $3,699.96 if you booked it straight through the Hyatt website without using any points at all. In this example, the redemption value of this potential award booking will be the cash cost of the room, which is $3,699.96, divided by the cost to book the room using points instead, in this case, 105,000 points. $3,699.96 divided by 105,000 equals 0.035. Finally, we take that number and multiply it by 100 to get the redemption value in cents per point. 0.035 times 100 equals 3.5. Meaning that you'd be getting 3.5 cents per point in value from this particular redemption.

But let's pretend that you don't have Hyatt points to book this stay, and you also don't have Chase points or Bilt points that you could transfer directly over to Hyatt to book and award stay there. But you are sitting on a mountain of American Express points. So you decide to check out how many Amex points you would need to book the same stay directly through the Amex travel portal.

So you run your search and you find out that to book that same three night stay at the Park Hyatt St. Kitts through Amex, you would need 348,936 points for the booking. You'd also have to pay $210.60 for additional property fees. Again, the cash cost to book the same room at that property during the same dates of stay would be $3,699.96.

So to calculate the redemption value of using Amex points to book that same three night stay at the Park Hyatt St. Kitts, we're going to take the cash cost to book the room, $3,699.96, minus the cost of the fees to book the room using points, in this case $210.60. We get $3,489.36. We take that number, $3,489.36, and we divide that by the total number of points needed to book the stay using your Amex points instead, which is 348,936.

So when we do that calculation, 3,489.36 divided by 348,936, that equals 0.01. Remember that the last step in this equation is to multiply that number by 100 to get the final redemption value. So 0.01 times 100 is 1.0. Meaning that if we wanted to use 348,936 Amex points and $210.60 out of pocket to book a three night stay at the Park Hyatt St. Kitts that would otherwise cost $3,699.96 in cash to book, then we're getting just one cent per point in redemption value for that potential booking.

Now, one really important thing to point out in this example is that the same exact three night hotel stay that would cost almost $3,700 to book in cash can be booked for 105,000 Chase, Bilt, or Hyatt points. But that same exact stay would cost over three times as many Amex points to book directly through Amex, almost 350,000 points.

That is the difference between getting 3.5 cents per point in value from your points and getting only one cent per point in value from your points. I think given the option, all of us would much prefer to use 105,000 points versus using almost 350,000 points for the exact same award booking.

So now that you know how to calculate the redemption value of a potential award booking, let's talk about what that actually means. More importantly, how you can use the redemption value to calculate whether you're getting a good deal with your points or whether a particular award is even worth booking with points at all.

Please don't take the numbers that I'm about to mention as some sort of points gospel. They're not. They're just how I think about points after using them to book travel for almost a decade. Also, I think it's important to state that for the context of this podcast episode, when I talk about redemption values, I am referring specifically to the major transferable points currencies, meaning Chase points, Amex points, Capital One points, Citi points, and Bilt points.

That's because other points currencies like specific airline or hotel points or miles don't carry the same exact value as the transferable points currencies or each other. But in order to keep this podcast episode under like five hours, I'm only going to focus on the relative points redemption values of those major transferable points currencies.

So with that out of the way, let's start with the basics. I think any award booking where you can get more than 1.5 cents per point in value is good. That's because 1.5 cents per point is about the highest redemption value you're ever going to get if you redeem your points directly through your credit card account for travel.

This is true for all of your flexible or transferable points currencies. Whether you have Amex points, Chase points, Capital One points, Citi points, if you use those points to book travel directly through your credit card’s travel portal, you're never going to get more than 1.5 cents per point because your credit card issuer has assigned your points a fixed value.

The main reason that I advocate for you to transfer your points out of your credit card account and to an airline or hotel transfer partner instead is precisely so that you can get more than one to one and a half cents per point in value from your beautiful points. Potentially much, much more.

That's exactly what you saw in the points example that I gave for making an award booking at the Park Hyatt St. Kitts. Using Amex points to book that stay gave such a low redemption value, one cent per point, because those points were redeemed directly through the Amex travel portal for that booking. Compare that to transferring Chase points or Bilt points out of your credit card account and into a Hyatt account to make the same exact booking, you can get over three times the redemption value, 3.5 cents per point to be exact.

So here's my completely subjective, somewhat arbitrary, and entirely unofficial barometer of how I consider potential award redemption values when it comes to using your transferable points currencies for award bookings. I think about a redemption value less than one cent per point as just bad from the perspective that you should be able to get that much just by redeeming your transferable points directly through your credit card travel portal.

A redemption value anywhere between one and one and a half cents per point is also not great, in my opinion, because, again, that's not doing any better than just using your points straight through your credit card account to book travel. Once you get into a redemption value between one and a half and two cents per point, that's fair. It's not amazing, but it's good. At that rate, you're doing better than just redeeming your points straight through your credit card account for minimum value.

Once you're getting between two and three cents per point in value from your points, that's very good. You're doubling, if not tripling, the amount of travel that you can book using points when compared to how much you're going to get by booking straight through your credit card travel portal.

Once you get past three cents per point, we're really starting to move. I think getting anywhere from three to five cents per point in value for a given redemption is fantastic. On the rare occasion where you find an award booking where you can get more than 10 cents per point in value, I think that is just extraordinary.

So let's put some more numbers on this just to illustrate the real life impact of getting higher value for your points. If you earn one million transferable points over the course of a year, which by the way, I think is entirely doable. But you only get one cent per point in value from those points, you could book $10,000 worth in travel using all million of your points. $10,000 in travel is a lot.

But if you get two and a half cents per point in redemption value instead of just one cent per point in value, those million points are worth $25,000 in travel instead of $10,000. That is a huge difference as far as I'm concerned. I think that most people can learn how to get at least two and a half cents per point in value from their transferable points a lot of the time. You don't need to be a unicorn or a full time award travel professional to do that.

Just to give you some more context. I went back, and I had looked at all of the different award travel bookings that I made last year in 2023 to see the range of redemption values that I got. My very best award booking was a one way first class flight from Chicago to Tokyo on JAL airlines that had a redemption value of 17 cents per point. Now, that is just insane. It's definitely not the norm.

But on the other end of the spectrum, I also used a bunch of Amex points to book economy flights from Chicago to St. Kitts at a redemption value of 1.1 cents per point, which I've just told you is pretty terrible. But we're going to talk more about that a little bit later in the episode.

But when I take all the travel that I booked using points in 2023 averaged out, I use a little more than 1.9 million points to book about $115,000 worth in travel, which comes out to an average redemption value of 5.9 cents per point, which I think is pretty fantastic.

Now, if I had gotten a lower redemption value when using all of those points, say just 1.5 cents per point across the board, those same 1.9 million points would have gotten me $28,500 worth in travel. $20,500 worth in travel is a lot, of course, but getting $115,000 worth in travel instead gave me and my family significantly more travel opportunities and experiences.

Okay, so now that you know what redemption value is, how to calculate it, and how to use it to know whether you're getting a good deal for your points, let's talk about why some folks think that calculating redemption value in this way is dumb or why using redemption value the way that I do to talk about the money saved using points is misleading or just plain worthless.

Here are the two main criticisms that I hear about redemption value and using it as a proxy for cash saved when using points to travel. First, some folks say that it is inaccurate to talk about the cash value of money saved on travel using points because they would never actually pay that cash amount for a particular award booking if they didn't have points to use instead.

Second, in this scenario where you're calculating the potential redemption value specifically for a one way flight, folks not incorrectly point out that the calculated redemption value is probably inflated given that the cash cost of one way flights is usually significantly higher than just half the cost of an equivalent roundtrip flight booked in cash.

So let's look at these two points of criticism a little closer. To the first point that it's inaccurate to talk about the cash value of money saved on travel using points if it's a booking that you would otherwise never make if you had to pay cash for it, my thought is like this is exactly why I think points are so valuable. Because they allow us to book travel that we might not have ever booked if our only option was to pay cash for it, but we still get to have that exact travel experience by using points.

That one way first class flight that I took on JAL to Tokyo last year that I paid 80,000 points and $5.60 out of pocket for was also available to book at the same time for a little over $14,000 in cash. Now, never in a million years would I personally have paid that cash price for that particular flight. Not because it wasn't amazing, but just because there are a lot of other places in my life where I'm, right now, going to prioritize putting $14,000 in cash.

But because of points, I did get to fly that flight. I think this is the same that's true of all points redemptions, especially the ones that you otherwise would not have paid cash for. Because of points, you can book that economy or business or first class flight that otherwise you wouldn't have. Because of points, you can book a week hotel state in Hawaii or Argentina or London and not have to pay the cash price that's listed for those exact bookings.

Regarding the second point of criticism around using redemption values to talk about money saved using points to travel, I have a couple of thoughts. The first is that I completely agree that the redemption value that we calculate specifically for one way flight redemptions is over inflated. That is because the cash cost to book a one way flight is oftentimes higher or much higher than the equivalent of half the cost of a roundtrip flight. So this drives up the calculated redemption value of a one way flight award booking, making these high redemption value bookings more like vanity metrics than reality.

Let's take the example of that one way first class JAL flight that I took to Tokyo last year to illustrate this point just a little bit better. As I mentioned, I used 80,000 points and $5.60 to book that one way flight that the airline was selling for a little over $14,000 to book directly through their website. That award had a whopping redemption value of 17 cents per point because the cash cost of that one way flight was so high.

But let's say that I had booked that as a round trip flight instead, it would have cost double the points and fees, so 160,000 points and $11.20, but the cash cost of a round trip flight would have been less than double the cash cost of a one way flight. Booking a round trip first class flight for my days of travel would have cost around $20,000 compared to a one way flight there was pricing out at $14,000.

Now, both of those numbers are astronomical, of course, but booking a $20,000 round trip first class flight for 160,000 points yields a redemption value of 12.5 cents per point, which is still incredible but it's not nearly as high as the 17 cents per point redemption value of booking the flight one way.

So if you are predominantly booking one way award flights and using the cash cost of one way flights in your redemption value calculation, that usually will yield a higher redemption value than if you were to book a round trip flight using points and use the round trip cash cost to calculate the redemption value.  

So from the perspective that using one way points and cash costs ends up artificially inflating the calculated redemption value of an award booking, I agree. One way flights usually do cost more than half the cost of an equivalent roundtrip flight. Sometimes much more. But does that mean that the redemption values that we calculate for one way award flight bookings are completely useless or inaccurate? I don't think so. Here is why.

One of the many advantages of using points to book flights is that most airline frequent flyer programs don't price round trip award flights to cost significantly less than two one way award flights, unlike when you're booking flights entirely in cash. Now, there are a few exceptions to this rule. But for the most part, you are not going to be penalized for booking one way flights using points versus booking a round trip flight.

This has significant implications. Because there are a lot of scenarios in which it might be preferable for you to book one way award flights instead of being constrained to only booking round trip flights. In fact, I almost never book round trip award flights using points. Instead regularly book one way flights, even for itineraries that functionally are round trip, and here is why. There's a lot more flexibility when you book one way award flights versus round trip flights.

If you book one way flights and then one aspect of your travel changes, say you want to return home a day earlier than you planned, or you decide that you want to fly home from a different airport than originally planned, it is so much easier to change a one way award ticket than wrecking an entire round trip itinerary. I love the flexibility that booking one way award flights affords in this respect.

The other major advantage of booking one way award flights is that it significantly increases the booking options available to you. It can be really hard to find an entire round trip itinerary that has award seats available for both legs of your trip, especially if you're trying to book multiple award tickets and, especially, especially if you're trying to book multiple business class or first class award tickets.

When you use points to book one way award tickets, you have the option to book your outbound flights on one airline through one frequent flyer program and book your return flights on an entirely different airline or frequent flyer program.

For example, my family is taking a trip to Rome this summer, and we are flying to Italy on Lufthansa, which I booked using miles in their Miles and More for frequent flyer program. But we're flying home on KLM airlines that I booked through the Air France KLM Flying Blue program using totally different type of points currency.

Booking one way award flights allows you to mix and match different airlines and booking programs, or even take advantage of using points from different points currencies or loyalty programs to construct a round trip itinerary. Cash bookings will never allow that range of options or flexibility.

So while it is true that using the cash cost of a one way flight to calculate the redemption value of using your points to make an award booking probably does inflate the value that you're calculating you're getting out of your points. The other side of that coin is that having points opens up the ability to book one way award flights with far more options than would be available to you using cash.

But the only metric that we have to measure the potential cash saved on one way award flights is the published cash cost for that same flight. So while I acknowledge that it is not a perfect system, and there are scenarios in which calculating the redemption value of a potential award booking probably does overstate the value that we're getting from points. I still think that it is incredibly useful to go ahead and calculate redemption values on awards that you are considering booking.

Not only phenomenal redemption value bookings are the ones that are worth points or because there's something inherently better about a higher redemption value award booking than a lower redemption value overbooking, not at all. Because the redemption value of a potential award booking should never be considered in isolation as the only data point that matters.

Rather, I'm going to suggest that there are three ways that you can use calculating the redemption value of a potential award booking to your favor without getting tunnel vision and using it as the sole metric for judging your use of points.

So the first way to use calculating redemption value in your favor is to use it as a benchmark to compare against the value that you would get from your points if you redeemed them through your credit card travel portal instead. I don't think you always need to shoot for getting some insanely high redemption value from your points.

But I do think that it's important to be able to evaluate that you're getting more value from your points for an award booking than you could get just using them through your credit card travel portal. Because ideally, you don't want to get less than one or one and a half cents per point value from your transferable points currencies.

There will absolutely be times where you're pricing out a specific award flight or hotel stay and the redemption value of that particular booking ends up being around one or one and a half cents per point or less. You want to know that so that you can decide whether or not you're better off just making a booking through your credit card travel portal instead.

The way that I look at travel is that every flight or hotel stay that I book is either a points earning or a points redeeming opportunity. Either I'm going to use my points to make a booking, or I'm going to pay cash for that booking but be sure to earn as many points as possible by leveraging my various points earning credit cards to pay for it. The best way for me to decide if a particular travel booking is better made using points or better made using cash is to calculate the redemption value first.

Now, I don't have a hard and fast redemption value or number below which I will only book in cash versus use points. But because there are so many options to get great value from points, I am really reluctant to use my points on what I consider low value redemptions. Basically anything that falls under or around two cents per point in redemption value.

So you can use calculating redemption value in the same way if it's helpful for you. If you have a potential travel booking that you could pay for in cash and the option to use points for it instead yields a low redemption value, you can consider whether you would rather use that booking as a points earning opportunity instead of a points redeeming opportunity.

Finally, the third way to use calculating redemption value in your favor is when comparing multiple different award options for a given trip to choose which one will be best for you. Oftentimes when searching for award flight options, for example, I will find more than one way that I can use points to get where I'm going. This is particularly true when flying from like a major US airport to Europe or vice versa.

You might have two or three or more different award flight options that will work equally well for your travel schedule. In that case, comparing the redemption values of each of those options can help you identify your preferred award option if one offers a significantly higher redemption value than the others. Now this is also true when you have the option to book one particular award flight through more than one frequent flyer program where there can be a significant difference in the points or out of pocket cash cost for the same exact award flight depending on which program you book it through.

Many airlines are part of larger partnerships with other airlines that are called alliances that allow you to book flights through one of several partner airlines. The opportunity when it comes to award bookings is that oftentimes the same exact flight can be significantly cheaper to book depending on which airline’s frequent flyer program you book it through.

A classic example of this is Delta award flights costing far fewer points to book through Virgin Atlantic's frequent flyer program then booking directly through Delta. In the scenario where one specific word flight could potentially be booked through two or three different airline frequent flyer programs, it can be useful to calculate the redemption value of each of the different booking options and use that as one factor to consider which booking option is the best one for.

Now before we wrap up today, the last thing that I want to touch on regarding award booking redemption values is to talk about good reasons for using your points even when you're getting a, quote, bad redemption value from them. I would always prefer to get more value from my points than less value. Like I said, generally I loathe getting less than two cents per point in value from my transferable points currencies, but there are situations where I think it can make sense to use your points even if you're getting low value from them.

The first is if you are more points rich than cash rich, meaning that you might be sitting on a large balance points and not have as much liquid cash available for booking travel at a particular time. In a scenario where you have points to spare and you otherwise wouldn't book travel because you favor saving that cash or just using it for something else entirely, then using points even at a, quote, low or bad redemption value can be a great choice.

This is exactly why I booked those flights that I talked about from Chicago to St. Kitts, just basic economy flights, using American Express points at a, what I would consider to be, very low redemption value about 1.1 cents per point. I did that strategically because that was a trip that I just didn't want to pay cash for period. We have a pretty high American Express points balance. I already had a lot of our other travel booked out for the upcoming six to 12 months. So I didn't feel like using those American Express points were going to take away from us the opportunity to do something different or something better.

So if your number one priority when booking a potential trip is to minimize your out of pocket cash costs, it can be a great option to defray your travel expenses by using points even if you're not getting a particularly high redemption value from them. Another scenario where it can make sense to use points for travel, even at a not great redemption value, is if you are very constrained in your travel dates or other aspects of your travel itinerary, and you don't have the luxury of picking between several award options.

If you absolutely have to travel, particularly if it's unexpectedly or on short notice, being able to lean on your points to get you where you need to go instead of having to pay in cash can be a huge relief, even if you're not getting a particularly high value from the points that you are using.

Finally, a great reason to get a not great redemption value from your points and book award travel anyway is when you want to use points for a booking that can only be made through your credit card travel portal. Airline and hotel loyalty programs are amazing and understanding how to use your points to book award travel through credit card transfer partners instead of directly through your credit card travel portal is one of the keys to unlocking the enormous potential value of points.

But not all flights and not all hotel stays can be booked through credit card transfer partners. Sometimes your only option to use points for an award booking will be to redeem your points directly through your credit card travel portal. If you have your heart set on staying at high end luxury properties like an Amman resort or a Four Seasons or even more boutique properties that are not part of major loyalty programs, using your credit card points directly through your credit card travel portal can be a fantastic option.

So there you have it, everybody. Everything you need to know about what a redemption value is, how to calculate it, how to use it to your advantage when making decisions around booking travel, and why it can still be a good idea to use points even if you're getting a bad redemption value.

Now, I want you to have this information not because I think that you should only be booking award travel if you can get above a certain value from your points. Not at all. I want you to have this information so that if you've only ever used your points to book travel through your credit card travel portal, you understand that you can potentially get way more value from your points.

I want you to have this information so that you feel confident that you know how to calculate the redemption value of a potential award booking and use that data to make the best decisions around using your points in ways that serve you and your ultimate financial and travel goals. Because at the end of the day, I truly do believe that the best use of points is the one that makes you happy. So go forth, happy points earning, happy points redeeming, and I will see you back here again, same time, same place next week. Have a great week everybody.

Thank you for joining me for this week's episode of Point Me to First Class. If you want more tips on turning your expenses into travel, visit pointmetofirstclass.com to learn more. See you next week.