It's a question I'm sometimes asked and it's a question I frequently ask myself. Because points and miles aren't really "free": you do pay for them, if only indirectly; and they do have value, which you want to maximize.
For example, the question of how much a point or mile is worth is part of the decision as to which credit card to choose, especially if you're paying an annual fee. And if you have more than one point-earning card in your wallet, which one you actually use depends not only on the number of points you'll receive for the transaction, but also the value of those points.
And then there's the question of those cards (like American Express Membership Rewards) that let you convert its points into points in other airline and hotel programs. Which conversion offers the best value?
Unfortunately, there's no clear, simple answer. For one thing, the points in different programs have different values. Hotel points, particularly, are all over the map. While it might take 7-10K points for a free stay at a Starwood property, an equivalent Priority Club hotel might require 15-25K, and Hilton 30-35K. And the points you earn per dollar spent on paid stays generally reflects their value. At Starwood it's 2, Priority Club 10, and Hilton 15 (with the bonus points double dip option).
While (most) airline miles are (roughly) equivalent in value (for example, 25K miles are required to fly within North America), what you redeem for affects the value of your miles. Since Aeroplan is the most popular airline loyalty program with Canadians, let's see what an Aeroplan mile is worth.
Say you want to redeem for merchandise, an Apple iPad2 WiFi 16GB. With tax, it's $586.47 at Apple stores in Ontario. It's 72,500 Aeroplan miles. So an Aeroplan mile is worth .8 cents.
What if you want a gift card instead? A $50 gift card from Home Hardware, the Bay, or Esso costs 6,500 miles, making a mile worth a little less, .77 cents each.
Maybe you want to actually take a flight. Now the value of your miles depends on where and when you want to fly. For example, a flight from Toronto to San Diego, leaving on March 1 and returning on March 8 is 25K points. Expedia charges $684.78, meaning a mile is worth a little more than 2.7 cents. But wait: Aeroplan charges an additional $105.66 in taxes, fees, and surcharges, meaning the 25K miles covers only $579.12, making a mile worth actually just over 2.3 cents. That's still pretty good. And I'm sure there are even better values out there.
One reason I like to redeem for travel rewards, rather than cash back or merchandise, is the greater value. Considering that many cards offer two points or miles for spending on gas, groceries, drugstores, and travel, and taking advantage of double-dipping opportunities (see this post on the topic), a return on credit card spending approaching 10% is possible.
Getting the best value from your points and miles requires a little work. Pay for a hotel room or flight if it's cheap (and earn points and miles!) and save your points and miles to use when rooms and flights are expensive, in order to maximize their value.
One final point to consider: hotel points have an advantage over airline miles that affects the calculation of their value. A free hotel night redemption has no extra fees: there's nothing else to pay, even the taxes are included.
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