Introduction to 'Transferable' Reward Points PLUS

Different credit cards earn different types of rewards.

In order to determine which credit card earns the most valuable rewards for your spending or offers the most lucrative signup bonus, you need to understand the different types of points they earn. Some points are more valuable than others and the value of each type of points depends on your own individual circumstances.

You can earn cashback, fixed-value points, frequent flyer miles, hotel points, or flexible "transferable" points.

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What is important is not the NUMBER of points you earn, but the VALUE of those points. Different types of points are like different currencies. Just like 1 Euro is worth more than 1 Mexican Pesos, 1 Hyatt point is worth more than 1 Hilton point. To compare them, you need to convert them into a cash value.

For example, the Hilton Ascend's 6x rewards on groceries sounds a lot better than the Amex’s Everyday's 2x rewards. However, at our base values, the Hilton points are worth around 2.7 cents per dollar and the Membership Rewards points are worth around 3 cents per dollar.

As another example, a 100,000 Marriott point signup bonus sounds a lot better than a 50,000 Hyatt point bonus. But a night in a typical Marriott downtown hotel requires 35 - 40,000 points, while a night in a similar Hyatt only requires 8 - 15,000 points. The Hyatt offer would give you more free nights in approximately the same type of hotel. In terms of our base point values, the Hyatt offer is worth about $875 (before costs), while the Marriott offer is worth $700.

TL;DR

Each of the types of point is discussed in more detail below. The quick summary is:

For most people, the best type of point to earn from your credit card spending are Chase's Ultimate Rewards points. They are very valuable, easy to earn, and easy to use—whether you are a beginner or an expert.
You (almost) never want to use an airline or hotel credit card for your credit card spending. You’ll get more valuable rewards from other cards. A few hotel and airline cards are worthwhile to use when you are making a purchase directly with them, but even then, a card that earns good bonus rewards on all your travel spending is usually a better option.
Hotel points are much easier to use than most frequent flyer miles. Until you are confident you can take good advantage of frequent flyer programs, we would value a typical hotel signup offer as more valuable than a good airline signup offer.

If you don’t want to mess around with frequent flyer tickets, Amex’s Membership Rewards and Citibank ThankYou points are only worth around 1 cent each. However, even at this rate, some of their cards still have valuable signup bonuses and reward rates. If you are collecting signup bonuses, Membership Reward points are some of the easiest points to earn.

If you are flexible and willing to invest the time, the best use of your Membership Reward, Ultimate Rewards, and ThankYou points is to convert them to frequent flyer points to book award tickets. However, it can be hard to use your points in this way. If you plan to use your points for business or first class plane tickets, and you value those tickets highly, each of these type of points (and many types of airline miles) are worth 3 or more cents each, and you’ll always want to earn these types of points. Once you know you can take good advantage of frequent flyer points, points from foreign programs are usually around as valuable as points from US programs. For example, you can easily use 50,000 British Airways points to book tickets on American Airlines. If you frequently travel on Amtrak, they are the most valuable points you can earn.

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Cashback

Some cards earn points that can be converted directly to cash. This is obviously very flexible, easy to use, and straightforward to value.

Fixed-value points

Programs that let you use your points like cash are called “Fixed Value” programs, because each point is generally worth a fixed amount of cash. For example, every point you earn from the U.S. Bank Altitude Reserve card is worth a fixed 1.5 cents towards travel purchases.

Theoretically, you often also have the option of using fixed-value points for other things (such as gift cards or merchandise), but you'll get the best value per point when you use them to purchase airfare and sometimes other types of travel.

This isn't as flexible as true cashback, but to keep things simple, you might want to treat these points as if they were worth full value. For example, the Altitude Reserve card has a 50,000 point signup bonus and earns 3x points on mobile wallet purchases, so you can treat this the same as getting a $750 bonus and earning 4.5% cashback. You are probably spending enough on travel every year that it is not much of a limitation that you can only use your points to purchase travel.
When possible, the best way to use your points is to "erase" travel purchases made with the card. Some reward programs will let you use your points to rebate all or part of the cost of any travel-related charges you make with the card. Instead of requiring you to use their travel booking site, you can use whatever site you want. For example, you can book directly with a hotel so that you still receive your loyalty program benefits or book with Hotwire.com to get an exceptionally low hotel rate. Since you are actually using the card, not your points, to make the purchase, it is easier to deal with cancellations and you'll often still receive reward points for the purchase.
Points can be used for a wide variety of travel purchases, not just airplane tickets and hotel rooms with the major hotel companies. For example, depending on the program, you could use your points for car rentals, hotels that don’t belong to the major hotel programs, cruises, flights on budget airlines, and Airbnbs. You can even use them to pay for incidental fees and expenses associated with booking award travel.
If you are required to purchase through the credit card company's website, it is usually best to use your points to purchase airfare. Airfare prices are usually the same on every website, while hotels and other travel purchases are usually cheaper elsewhere. With some types of points, you'll get more value per point when you are purchasing airfare anyways.
Even when you are buying airfare, there are some disadvantages to booking through the credit card company website. You sometimes can't book basic economy fares, you usually won't receive any free credit card travel insurance, there is sometimes a small added transaction fee, it is always less convenient than booking directly with the airline, and you may miss out on small amount of extra rewards you could have earned by booking through a different travel booking site. As a result, these points are not quite worth their "face value".
Some programs are even less convenient. Sometimes you can only use your points for the full value of a purchase. If you don't have enough, you can't use your points. When you do have enough to make a purchase, you are likely to have leftover points that will be hard to use on other purchases. Sometimes you need to use a block of points to make a purchase of "up to" a dollar amount, such as for a ticket purchase of up to $400. If the purchase is less than that, you aren't getting the full theoretical value from your points.

Fixed-value Frequent Flyer Miles

Southwest, JetBlue, and a few other frequent flyer programs have points that work similarly to cash-like points. You can use your points to purchase any ticket on the airline, without needing to worry about award availability. When you do, there is essentially a fixed exchange rate for your points—the number of points you need to purchase the ticket varies directly with the ticket price.

For example, on Southwest airline, there isn't a fixed price for round trip domestic ticket. The award price of a ticket is determined by dividing the cash cost by between 1.3 - 1.9 cents per point. Behind the scenes there is a fixed exchange rate, but once taxes and fees are factored in, the rate is a little better with less expensive tickets, a little worse with more expensive tickets, and a little better with international flights.

There aren’t really good or really bad opportunities to use your points, and there aren’t issues with award availability—you’ll get the same value per point, regardless of when you use them (at least roughly).

Just as some reward points have a limitation that you can only use them for travel, these points have a further limitation that you can only use them for travel on a specific airline.

We value Southwest Airlines points at around 1.5 cents each and JetBlue points at around 1.4 cents each (less for Mint).

Accor Hotels operates a fixed-value hotel program. There points are worth .02 Euros each (or just over 2 cents). Template:Point Types/Box