Back to Basics: An Introduction to the Types of Reward Points Back to Basics: An Introduction to the Types of Reward Points

Back to Basics: An Introduction to the Types of Reward Points

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With so many loyalty programs, it can be hard to see the big picture of how different types of points fit into your overall strategy. Which points are best? The answer depends entirely on your goals. In today’s post, we’ve organized rewards into four groups based on how you can redeem them.

For those new to points and miles, this framework is a great starting point to compare strengths and weaknesses and see how different types of rewards work. It's worth noting that there are some types of rewards that don't fall neatly into a single category—you might have multiple redemption options with a single type of points. Once familiar with the basics, it's much easier to see which option is the best fit for your travel needs.

Fixed-Value Reward Points

Our first group includes all the rewards points that are assigned a specific cash value. These points are like a foreign currency which is pegged to the U.S. dollar. Most fixed-value rewards are assigned an exact value, but some may fluctuate within a narrow range.

Types of Fixed Value Points

Within the fixed-value group, there some differences in how you can redeem points for travel. Here are some examples:

Cashback is the most straightforward and flexible; your rewards accumulate as dollars, and you can use them however you like. In most cases, you can redeem cashback as a statement credit, which means the bank will apply the rewards as a payment towards your upcoming bill. Popular cashback cards include the Wells Fargo Cash Wise Visa® card, the Chase Freedom Unlimited®, and the Citi® Double Cash Card.

Travel Statement Credits work like cashback, but you are limited to merchants in the travel category. The Purchase Eraser feature of the Capital One Venture Rewards Credit Card is a great example of this kind of redemption in action. Just use your card to pay for travel. Once the purchase shows up in your account, you'll have the option to redeem points to cover the cost. A big advantage of this redemption mechanism is that you can book travel through your preferred website or online travel agency, which means you can shop around for the best price.

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With Capital One, just make a travel purchase like you would otherwise and then erase it later!

Travel Portals let you exchange your points for a variety of travel experiences, but you have to make your purchase through a specific website. Instead of paying for travel with your card and redeeming points for a statement credit afterward, you exchange points for the trip you want on a specific website. In addition to the fact that you won't be able to compare prices, some travel brands (especially hotels) won't give you credit towards elite status or elite benefits when you book with a third-party travel portal. Wells Fargo Go Far Rewards is a good example of this type of redemption.

Fixed Value Airline Points are a bit different than the other rewards currencies in this group. Programs like JetBlue TrueBlue and Southwest Rapid Rewards tie the number of points you need for a flight directly to the cash price. While these programs don't offer the same opportunity for outsized value as traditional frequent flyer points, they offer transparent pricing, and they are much easier to use.

Read more about How To Maximize Fixed Value Points & Miles.

Strengths

  • Transparency
  • Ease of Use
  • Flexibility

Transparent pricing is the most attractive feature of fixed value rewards—you know exactly what to expect, and you won’t need any special knowledge to redeem these points effectively. If you want to use fixed-value reward points for $1,000 worth of travel and each point is worth 2 cents, you will have to redeem 50,000 points. If each point is worth 1 cent, the travel will cost 100,000 points.

Fixed value points are much easier to use than some of the other types of points. You don't need any advanced knowledge to turn your rewards into a great trip, and you don't have to worry about whether you're getting a good deal. Since these points are tied to cash prices, you just need to evaluate whether the cash price seems fair.

Another advantage of fixed-value rewards is flexibility; you can use them to cover travel costs that aren't easy to book with other types of points. Think about using them on your car rentals, your Airbnb stays, and even cruises. These are great to have in your portfolio when you are traveling somewhere that doesn't have big hotel brands or major airlines. You can use those points to pay for that tiny, off-the-grid hotel or a small local airline that doesn't offer reward flights.

Weaknesses

  • Limited upside
  • Vulnerable to price changes

The biggest downside with fixed-value points is that it's hard to get outsized value. The tradeoff for simple redemptions and transparent pricing is that there aren't opportunities available to be exploited. Many points and miles enthusiasts are attracted by the chance to book aspirational travel that they would never dream of paying for at the retail price. With some of the other types of points covered in this post, it's possible to turn a single credit-card bonus into a $10,000 first-class flight. That simply isn't possible with fixed-value points.

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You aren't going to want to book Cathay Pacific First Class with fixed-value points!

As a consequence of being tied to the retail cost of travel, the number of fixed-value points you'll need for a given trip changes constantly. This can make it harder to plan your earning strategy for an upcoming trip.

Airline Frequent Flyer Points

Unlike the airline rewards programs included in the fixed-value group, traditional frequent flyer programs don't tie the number of miles you need for a redemption to the retail cost of a flight. In general, the cost of travel is determined by either the distance you fly or the region of the world you want to visit.

Some frequent flyer programs charge a flat rate from any airport in the U.S. to any airport in Europe; others charge more for a longer flight from Los Angeles than they charge for a shorter flight from New York. But with these points, each route has a fixed price—regardless of how much it costs to buy the airfare.

Types of Frequent Flyer Miles

U.S. frequent-flyer programs include:

Non-U.S. frequent-flyer programs include:

Strengths

  • Award costs aren't impacted by changes in the cash price
  • Book expensive, premium-cabin tickets for a tiny fraction of the normal price
  • Experience and knowledge are rewarded

Frequent flyer programs are the gateway drug of the points and miles hobby. Since award prices are independent of cash prices, there are incredible opportunities to redeem a small number of miles for a trip that would be very expensive to buy. Business- and first-class flights and tickets booked close to the date of departure are great examples of how you can get incredible redemption values.

A ticket for a flight today is usually far more expensive than a ticket for the same flight a few weeks from now. Airlines know folks who book same-day travel are usually business travelers (who don't mind since the company is picking up the tab) or someone dealing with an unexpected emergency (nice right?). They inflate those last-minute prices because those customers are willing to pay more.

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But award tickets generally don't follow the same logic. If the flight is going out half-empty tomorrow, the airline's cost to adding more passengers is very low. A little extra fuel for you and your bags and maybe a soft drink in flight. The number crunchers in accounting think of all those outstanding miles as a liability, so it makes sense to get them off the books when the extra cost is as low as possible.

The same logic applies to business- and first-class tickets. The airline certainly doesn't want you to take the last seat in the cabin if someone would have paid $5,000 for the privilege. But, if they expect empty seats, they're more than happy to open up those spots to folks with miles.

If you can't tell already, the challenge with frequent flyer miles isn't getting a low price; it's finding those empty seats. The more experience you have with a frequent flyer program, the more value you can squeeze out of every mile. But of course, the opposite is also true.

Weaknesses

  • Difficult and time consuming to redeem
  • It's easy to overpay (or fail to find anything to book) if you lack experience

The huge upside with frequent flyer miles comes at the expense of ease of use. Would I like to drink $300 a bottle champaign while lounging in a private first-class suite on my next 14-hour flight? Sign me up! Now about booking that award ticket…

As you might imagine, fixed award pricing creates havoc with supply and demand. The airlines only make it possible to book a small percentage of the seats on each flight with miles. These redemption opportunities are usually called award availability or award inventory. The airline's revenue-management team watches ticket sales like a hawk. If they expect empty seats, they'll open up more award availability. But, put simply, there are lots of miles chasing only a small number of seats. For this reason, frequent flyer miles can be incredibly frustrating if you lack experience.

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If an airline expects lots of empty seats, you have a better shot at finding award availability.

Even if you do succeed at finding an award to book with miles, it's very easy to overpay—either in terms of the number of miles you redeem or the taxes and fees you pay out of pocket. For any given flight, it might be possible to use more than a dozen types of points or miles.

Although the award price charged by one frequent flyer program is generally the same for a given route, a different frequent flyer program might be able to book the same flight for fewer miles, lower taxes, or both. For example, consider this entire post about when it's a better deal to use British Airways points to book American Airlines flights.

Hotel Reward Points

Hotel points are a relatively straightforward rewards currency. Most programs divide their properties into categories and charge a fixed price for a free night of accommodation.

Generally, more expensive hotels are assigned a higher category and require more points to book. While this pricing model does broadly align the cost to redeem with the cash price to book a room, the price in points for a given hotel room shouldn't change from one day to the next. The cost of a standard room is fixed for all hotels in the same category, so you’ll need the same number of points for a category-5 Hyatt whether you're staying in Miami, Paris, or Hong Kong.

Strengths

  • Relatively easy to redeem
  • Some aspirational awards for a fraction of the normal price
  • Elite status benefits can add extra value without spending more points

Hotel points are generally easier to use than frequent flyer miles for a couple of reasons. Many hotels will let you use points to book any room that is for sale. While this isn’t true for all hotel programs, you won’t run into the highly restricted award availability you often face with airline miles. It’s also easier to know which hotels are redemption options. Most hotels are made up of a group of individual brands—any of which you can book as awards.

For example, IHG hotels include brands like InterContinental, Crowne Plaza, and Holiday Inn. Hilton’s portfolio includes Waldorf Astoria, Conrad, DoubleTree, and Embassy Suites. It’s very common for airline frequent flyer programs to have partners you can’t find or book on their website. Hotels generally have a comprehensive search tool to find and book your next award.

Header-Marriott-Huahin-Resort-Spa-Huahin-Thailand

Hotel points can make it possible to book really expensive properties at almost no cost. For example, in our post on luxurious Marriott redemptions, we highlight some examples of using points for properties that charge over $1,000 per night. These aspirational redemptions can be very cool if they fit in with your travel plans, but they aren’t the only way to get good value. The biggest hotel chains have thousands of properties, and only a small percentage of those are likely to provide jaw-dropping savings when you use points.

Another big advantage of hotel awards is that having elite status can really enhance the value of your points. If you book a standard room (at the standard price in points) you may end up with extra benefits like early check-in, late check-out, free breakfast, or even an upgrade to a suite. Even better, you don’t need to spend a lot of money (or a lot of nights away from home) to get hotel elite status. Many of the best hotel rewards cards offer complimentary elite status or a way to achieve elite status faster with your regular spending.

Weaknesses

  • Lower value than other types of rewards
  • Limited booking options in some parts of the world

The primary weakness of hotel points is that they generally aren't worth as much as airline miles or transferrable bank points. Hyatt is a notable exception. 60,000 Hilton or IHG points might get you free a two-night stay at a mid-tier hotel. 60,000 United or American Airlines miles could get you a round-trip, economy-class flight or a one-way business-class flight to Europe. If you do the math to see how much it would have cost in money to buy the same travel experience, airline miles often come out between 2x and 4x more valuable.

Now that doesn't mean you should avoid hotel points. But you do need to get a feel for their relative value to when comparing credit card welcome offers and deciding which card to use on everyday spending.

If you like to wander off the beaten path, you'll find that some hotel brands don't have a presence in every destination on your bucket list. You won't have trouble using hotel points in New York, Paris, or Tokyo, but Rio de Janeiro or Salvador, Brazil can be a different story. If you prefer to stretch your budget by having access to a kitchen or need extra space to stay sane on a family trip, a service like Airbnb might be a better option. In those cases, fixed-value points are a great way to use rewards to cover accommodation.

Types of Hotel Points

Hotels that offer reward points for stays include:

As you'll see in the next section, Marriott Bonvoy is also the only major type of transferrable points that isn't a bank rewards program.

Transferrable Rewards Points

Transferrable points are the most flexible type of rewards because you can convert them into other types of loyalty points. These points can also be redeemed for a fixed value—either through a travel portal, as cashback, or as a statement credit for travel purchases.

When you transfer these points to an airline or hotel, they take on all the prices and rules of the partner program. Transfers are one-way only; you can't transfer airline or hotel points back into transferrable points once you have transferred points to a partner.

Types of Transferrable Points

Marriott Bonvoy can function as traditional hotel points or you can convert them into airline miles. It's worth noting that Marriott isn't the only hotel program that offers transfers to airline partners. We don't cover the others in depth because their conversion rates are generally a terrible value.

The most popular transferrable reward points are:

Strengths

  • Maximum flexibility
  • Easy for beginners, rewarding for experts
  • Easy to earn

Since these points can be transferred to a variety of other loyalty programs, these points give you many more options than any other type of rewards. When you're ready to book a trip, you get to pick the program that offers the best rules or the best price.

For beginners, the sheer number of options can make it much easier to find something that works.  As you learn more about the individual hotel and airline programs, you see that each has its sweet spots that offer especially good value. Points and miles experts love transferrable points because they let you leverage the best parts of every partner program.

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With transferrable points, you can transfer points to a variety of airlines.

If you need a short, nonstop flight British Airways' distance-based awards can cost half as much as the competition. If you want to visit multiple destinations, a program like United MileagePlus lets you build them into your itinerary for the same cost as a simple round trip. Since both are Ultimate Rewards transfer partners, Chase points allow you to capture the best parts of both airline programs while reducing your downside risk from a devaluation.

Lastly, these points are among the easiest to earn. Each program has a full lineup of rewards cards that come with lucrative welcome bonuses. Many of these cards also earn extra points on specific types of purchases.

Weaknesses

  • Maximizing value can be complicated
  • Easiest options provide less value

With so many options, it can be more challenging to decide on the best course of action. If you're a perfectionist by nature, it can be easy to overanalyze or worry if you're getting the best possible deal. We'll take too many options over none every time, but don't forget to put a value on the time you spend searching for awards. You can request expert help with a booking right from your AwardWallet account. If you have transferrable points, your booking expert can provide even better options.

Most of the best transfer partners are airline frequent flyer programs. The option to transfer bank points to hotels or redeem them for a fixed value is great to have if you need it. However, the cost of that simplicity is leaving some value on the table.

Collecting Different Types of Points

As you can see, there are so many different reward points and so many ways to use them! For someone who wants to take advantage of all their different benefits, it is a good idea to have a diversified portfolio.

For instance, if you are going to Greece, you could use Ultimate Rewards to transfer points to an airline partner to book your flights. You might be able to use hotel reward points for your stay in Athens. However, Greece's smaller islands have limited chain hotels. So, you might decide to stay in an Airbnb and use fixed-value points from your Capital One Venture Rewards Credit Card to cover those costs. Having the availability of each of these types of points lets you book your trip easier and allows you to spend less out of pocket.

Having a variety of different reward points allows you more flexibility and more choices when booking award travel. Be sure to include transferable points in your arsenal. However, don’t forget the value that the other types of reward points can provide.

Final Thoughts

If you're just getting started, the world of points and miles can seem overwhelming. So, it's critical to learn the basics. By knowing the different types of points and miles, you have a good base of knowledge to start. As you've seen, each of the different types of points has its own benefits and weaknesses. If you value simplicity, fixed-value rewards and hotel points might be where you want to focus. Alternatively, airline miles and transferrable rewards can be highly rewarding if you don't mind putting some time into researching.

For those just getting started, we cover award booking strategy extensively on the blog. Also, our Facebook community AwardTravel 101 is a great place to start your journey. But like most things worth learning, it takes time and energy to develop the knowledge you need. We're here to help!

If you're looking for more beginner points and miles content, check out our Beginners Guide to Award Travel Planning: Award Flights.

The comments on this page are not provided, reviewed, or otherwise approved by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

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Comments

  • Very helpful summary for beginners. Simple and comprehensive explanation with lots of useful points.

  • Great resource for all things points. Always good to refresh the memory because some of these programs can get a bit confusing. Will refer to this one when I need it!

  • Very interesting post for beginners. It’s a complete summary and has really useful information for people who want to start first steps in this marvelous world of rewards points.
    Thanks for this post !!

  • Great blog. Simple explanation and at the same time pretty comprehensive as well. Beginners usually take time to understand what options work best for them, including choice of hotel and airline. Even though it requires little more research and the value isn’t great, transferrable rewards might be best for a start before migrating to a higher rewarding hotel/airline loyalty program over time.

  • This is a really good refresher to help keep me on track.

  • Thank you, Erik. This is a very basic article about points. Because many companies, especially airlines, currently set up complicated rules for accumulating points, causing many people to not know how to choose their own goals. With the current global epidemic not yet under control, the greatest way to gain points should be through online shopping to accumulate them.

  • I tell people all the time that annual fees are like warehouse club memberships. If you do your research, you can save a lot of money by paying to get in the door. Some people can even justify two memberships or three but do your own evaluation.

  • Transferable seems to be the way to go even more so now than before!

  • Thank you for this–a good post to bookmark and refer back to as I continue to get the hang of how to use my points!

  • KC_Queso says:

    Excellent summary.

    You might need to clarify how the US based carriers are moving (or have moved) to dynamic award pricing, so not quite as directly linked to price as Southwest but getting closer.

    I’ve also struggled with hotel award availability, once at an airport where the Hyatt I wanted would only take cash while the Hyatt in the wrong terminal was taking points, and the other was when Holiday Inn on the Royal Mile in Edinburgh suddenly had no rooms left to book with points mere days after the last time I’d looked (and we’re talking 7 months in advance).

    You comment that transferable points are the most flexible, but I might argue that cash is most flexible…using cash back to strategically buy points for outsized value award redemptions (since points go on sale all the time) or to just buy what you want when award availability is hard to find gives you ultimate flexibility.

  • This is a great post for beginners.
    Do you have a translation for this post in Arabic?
    I have many freineds who travel frequnetly. Reading this post in Arabic, my friends might sign for Award Wallet accounts in the future once they see similar posts’ benefits

  • Dan @ Points With a Crew says:

    This is a super helpful post especially for people who are just starting out and trying to learn the basics of how credit card rewards work, how to maximize them and why you should!

  • This is a great post, especially for beginners. Great breakdown and explanation!

    • Great for beginners and for those who have been doing this so long we’ve forgotten some valuable details several times over. LOL.

  • Really useful and comprehensive post!

  • If only transferable points could be transferred both ways…haha.

    • Oh man, the damage we could do if that were true. Sign up for cards with poor currencies (ie Hilton) and eventually cash them out to something great like Hyatt. Just imagine.

  • Erik, thanks for this. It’s easy for those of us deep in the credit card world to lose sight of this. Yet another high quality writeup that is great for sharing with family and friends.

    • Thank you Katie! I appreciate you sharing this with family and friends who are learning. I wrote this thinking mostly of how I’d explain it all to my mom 🙂

  • As someone trying to help others break into this “game,” this is extremely helpful for them. Thanks for posting.

  • Terrific detailed post! Thank you so much!

  • Really useful summary to have a sight to the upcoming travelk world… Thank you!