Best way to redeem travel points: Why hoarding points is a bad investment


For most people, pursuing credit card rewards is a game of cat and mouse. You keep a watchful eye on your credit score, seek out the best offers, and strike when the iron is hot.

But that is just one component of the hobby; the other part of the equation is that it can be extremely exciting to watch your point balances climb. Obviously, the more credit card rewards offers you sign up for, the more sign-up bonuses you earn, and the more spending you complete over time, the more points you accumulate.

If you love to save like I do, it can be tempting to do the same with your points and miles and hoard them in the same fashion as you would your monthly paycheck. But there are a number of reasons why you shouldn't treat your airline miles and hotel points like cash in the bank. Here are a few:

Devaluations

If you've been collecting airline miles or hotel points for any length of time, you've probably lived through at least one major devaluation. If you haven't, I'll explain what that means.

Basically, each frequent flyer and hotel loyalty program has a system that dictates how much each point is worth and, occasionally, they'll deem that their points have become too valuable and decide to make them worth less. A few examples:

  • American Airlines – In February of 2014, American's frequent flyer program updated their awards chart to include five tiers while simultaneously increasing the number of points required for some of their most desirable redemptions.
  • Delta Skymiles – The Delta frequent flyer program has lived through multiple devaluations, including big changes in 2012 and two changes in 2013. Although some tweaks were more noticeable than others, the changes ultimately made award flights more expensive and more difficult to book.
  • United Airlines – In early 2014, United updated its award chart to increase the number of miles required for award bookings on United and their partner airlines. Most of the increases were aimed at international reward bookings and business and first class redemptions, but it still hurt.
  • Southwest Airlines – Unlike many other frequent flyer programs, Southwest Rapid Rewards has a price-based redemption system, meaning that award seats are priced (in points) based on the price of the fare. As of late 2013, Southwest fares were boosted so that you needed 70 points for every $1 on a Wanna Getaway Fare instead of the 60 points you needed previously. Even worse, Southwest recently announced another devaluation set to take place this April, although no further details have been released.

Notice a pattern? If you follow the history of frequent flyer programs, you'll notice that their currency becomes worth less and less with each passing year. And this phenomenon isn't limited just to airlines; major hotel loyalty programs have gone through countless devaluations over the years, including big changes from Hilton, Marriott, and even Starwood Preferred Guest. Just remember, award chart changes are never in your favor, and they always result in your points being worth less.

Expiration dates

Beyond devaluations, it is important to understand that many credit card points expire if they remain inactive for a certain length of time, too. In some cases, they expire if you don't earn or spend any miles within a span of 12 to 24 months and, in others, they will expire if you close your account.

Keep in mind that you generally just need to earn or burn some miles to keep your account active, and that earning just a handful of points can reset the clock and keep your account in good standing.

Here are some of the most popular programs' expiration policies:

  • American Airlines: 18 months
  • British Airways: 36 months
  • Delta Skymiles: no expiration
  • United Airlines: 18 months
  • Virgin American: 18 months
  • Club Carlson: 18 months
  • Hilton: 12 months
  • Hyatt: 12 months
  • Starwood Preferred Guest: 12 months

You get the picture, but can you imagine keeping track of multiple point balances over multiple programs? Imagine saving a hefty balance of points in one program for a year only to find out that your points expired and your effort was all for naught. Unfortunately, that happens all the time, and often to those who are saving their balances for a special trip or redemption.

In addition to worries over devaluations and expiration policies, another good reason to cash in your points frequently is plain ol' inflation. The fact is, credit card rewards don't collect interest, so no matter what, the value of your points will erode over time. And even if you are just collecting cash-back rewards, the money you accumulate will be worth less this time next year.

Points and miles — the perfect excuse to spend

If you have been saving your points and miles for a while, you probably have a healthy stash. But it is a good idea to think of your account balances differently than your actual investments. Because unlike your retirement accounts, your point balances only stand to lose value over time. Think of it this way: Saving points and miles is kind of like keeping them in a savings account that actually charges you five to 10 percent interest each year.

So if you are sitting on a mountain of points, consider burning them before it's too late. Take stock of what you have and see if you can use them for this year's spring break or your summer vacation plans. Search around for the best redemptions and use your points in the way they were intended instead of letting your balances grow month after month. And after you book your dream trip, consider opening a vacation savings account to help pay for everything your points and miles won't cover.

And have fun with it! Because when it comes to points and miles, it never pays to save.

How often do you redeem your points and miles? If you tend to save your points and miles, are you saving up for a special trip or purchase?

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Don
Don
5 years ago

My wife and I saved up our US Air miles to fly first class for free (well $200 with taxes and fees) for our honeymoon to St. Martin. We are saving up our miles again, but are concerned/interested to see what happens when the rewards programs of US Air and American finally complete this year. We are hoping they don’t get devalued, but aren’t holding our breath. I’m just hoping it’s not like Delta where you get miles based on the ticket price and not the miles you actually fly.

Beth
Beth
5 years ago

I agree about not saving points. When I was first starting out, the travel points i accumulated going home during my university days were an unofficial part of my emergency fund. In a crisis, I would be able to get to my family with no money out of pocket. I still keep a trip’s worth of points, but I’ve been turning points into cash by using them to pay for a trip I was taking anyway and then putting the equivalent cost in a savings account. I’ve been a member of some rewards points programs that have been cancelled without… Read more »

Nick @ Millionaires Giving Money
Nick @ Millionaires Giving Money
5 years ago

Devaluations are really annoying and in the past I did hoard my air miles. I now look at using my air miles as soon as they become usable to avoid nasty devaluations. Thanks for sharing, I’m sure a lot of people will find this useful.

Brendan
Brendan
5 years ago

This is good advice. The analogy to a savings account really puts it in perspective. Might I suggest changing the title? Maybe something like “why” you should spend your miles? You don’t actually give “how” advice. Maybe I’m nitpicking, but inaccurate titles really bother me in this world of clickbait we live in. Definitely a great article, though!!

Syed
Syed
5 years ago

This is a great point. I’ve pretty much given up on accumulating miles through spend and just focus on sign up bonuses. With a number of 2% cash back cards available, I tend to favor cash back for regular spending. I just shuttle any cash back earned into my high interest student loans. I figure that’s a much more valuable way than just letting miles sit there and expire.

Suzanne
Suzanne
5 years ago
Reply to  Syed

I agree. I signed up for SW’s Chase Card for the bonus 50,000 miles after a certain amount of purchases within three months. My other card, that I’ve had for about 15 years, originally began as a flights-only points program that I used several times successfully. Over the years the program has become more complicated, so I kind of forgot about it. Last fall, they announced a major devaluation to the points. Luckily, I read the email and cashed in – more than $900 in cash! Now the points I accumulate on that card are practically worthless, but I’m reluctant… Read more »

Beard Better
Beard Better
5 years ago

This is absolutely great advice. There’s no point in accumulating a bunch of points and miles if you’re just going to let them expire; it makes your credit card rewards rate plummet to an even 0%. I try not to accumulate them if I don’t have at least a somewhat specific plan for using them to prevent this. On the other hand, this article is being a bit overly dramatic. To prevent miles from expiring, all you need to do is cause some change in your frequent flier account before the expiration date; buy some cheap trinket with miles, or… Read more »

Kevin L.
Kevin L.
5 years ago

You really have to be disciplined not overspend on credit cards to rack up the miles. My mentality is: if I HAVE to spend the money, might as well earn something back. I normally charge recurring expenses to my credit card. I do eat out, but still remind myself that only when I can afford it. I agree with Beard Better, there are all these tools out there to help you manage your miles. There’s no excuse for your miles to expire. Miles should work in conjunction with your vacation savings. If I rack up enough miles for a ticket… Read more »

Jen
Jen
5 years ago

My husband had saved a lot of points due to a basement remodel we took mileage CC out and for work travel. Well he accumulated 100,000 on US Air plus we have a lot more on Delta. We tried to actually redeem our points for flights out of a major airport. You’d think a family of 4 could get the low level seats when we were flexible with travel at 25,000 points. Well I found the flight when I put 1 passenger in, but when I put more than one the point level increased dramatically. I had my husband call… Read more »

Kasssy
Kasssy
5 years ago

Another reason not to save for the ‘big trip’ is that the miles/points are often a better deal on the lower end trips.
For example, with my Starwoods card, at a level 2 or 3 hotel I am sometimes earning the equivalent of 4-5% on my spending. On higher end hotel is is more like 1-1.5%. So saving for that big fancy trip to big name city and staying in the suite is better done thru savings and use the points on the routine/cheaper trips.

Abigail @ipickuppennies
Abigail @ipickuppennies
5 years ago

Wow, guess we got lucky. I hadn’t been using our United rewards points at all for ages. But the prices didn’t seem to change when my husband booked a trip last year. We were able to pay for his ticket and rental car completely with points.

Still, good things to keep in mind as we amass more of them. He wants to travel again this year while I’m at FinCon.

Joette Marotto
Joette Marotto
5 years ago

it seems over my control

Jan
Jan
5 years ago

Have saved several years for flights to England. Somehow my bank now tacks on some wild fees because they only get “full fare” coach. Looking to turn it all into cash and switching to cash back.
Well, at least I had twenty great years of reward points.

Kat
Kat
5 years ago

I don’t think devaluations mean you shouldn’t even try to play the points and miles game. Like any investment, you just need to have a strategy that matches your goals, you need to be disciplined, and you need to keep an eye on your investments. Yes, it takes time and careful planning, and you have to learn the basic rules first, but it could pay off big. For example, in 2013 my husband and I did 5 countries, 19 days in Asia. We were able to use hotel points and airline miles to cover everything except 4 nights. Total out… Read more »

Kayla @ Femme Frugality
Kayla @ Femme Frugality
5 years ago

This is great info to know for the future for sure. I’m considering getting a rewards credit card that I can use for cash back or travel rewards. I just need to decide which is better for me.

Pete
Pete
5 years ago

very good article!

BrentABQ
BrentABQ
5 years ago

Very timely for me. I just started getting points with southwest and they decided to do 2 things. They dropped a few very regular flights I took making many southwest flights a non-option from home and they also announced this devaluation bit. Now it will be hard to use them the same way I was expecting. I started a new rewards program, but I’ll be more carefull about using the points up before they get too stale.

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