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 available, it can be difficult to see the big picture of how different types of reward points fit into your overall strategy. Which points are best? The answer: It depends entirely on your goals. In this post, we’ve organized rewards points into four types or 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 of different programs. We'll illustrate how different types of reward points work. It's worth noting that you can find some types of points that don't fall neatly into a single category. For example, you might have multiple redemption options with a single currency. This is usually for the best, however, since you can take advantage of greater flexibility.

Once familiar with the basics of various types of reward points, you'll be able to see which type(s) best fits your travel needs.

Fixed-Value Reward Points

Our first group includes all the rewards points that are assigned a specific cash value. These types of rewards 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. There are several types of fixed-value points with some key differences in how you can redeem them for travel. Let's walk through each.

Related: How To Maximize Fixed-Value Points & Miles

Cash back

Cash back is the most straightforward and flexible type of fixed-value rewards. Your rewards accumulate as dollars, and you can use them however you like. In most cases, you can redeem cash back as a statement credit, which means the bank will apply the rewards as a payment towards your upcoming bill. Some cards let you receive your rewards as a check or deposit to a bank account. Popular cash-back cards include the Chase Freedom Unlimited® and the Citi Double Cash® Card.

Travel statement credits

These work like cash back, but you are limited to merchants in the travel category. The Capital One Venture Rewards Credit Card is a great example of this kind of redemption in action (although this particular card offers other redemption options, as well). Just use your card to pay for travel purchases, including flights, hotels, cruises, car rentals, rideshare apps, and more.

Tip: Want to know if a merchant classifies as travel? Use the AwardWallet Merchant Category Lookup Tool

Once the purchase shows up in your account, you'll have the option to redeem miles 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. This means that you can shop around for the best price and aren't required to book in a certain way to redeem your earnings.

an unseen person types on a laptop
With Capital One, just make a travel purchase like you normally would and then redeem miles later to cover the cost!

Travel portals

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. Another downside here is that you may want to purchase travel items not available on that site, such as Disney tickets or guided tour.

Wells Fargo Go Far Rewards is a good example of this type of redemption. Other cards that earn fixed-value points include the U.S. Bank Altitude™ Reserve Visa Infinite® Card and Bank of America® Premium Rewards® credit card.

Fixed-value airline points

These 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. The exact value you get for your points may fluctuate a bit, but it is held within a limited range. While these programs don't offer the same opportunity for outsized value as traditional frequent flyer miles, they offer transparent pricing, and they are much easier to use. If there's a seat available, you can buy it with your airline points in these programs. The higher the cash price, the more points you'll pay.

Fixed-value hotel points

Accor Live Limitless provides a great example here. You'll redeem 2,000 points to knock 40 euros off your hotel bill — no more, no less. You have to redeem in 2,000-point increments and always get the same value from Accor points. The redemption value is fixed, regardless of hotel type or how much it costs.

Strengths

  • Transparency
  • Ease of use
  • Flexibility

Transparent pricing is the most attractive feature of fixed-value rewards points. You know exactly what to expect. If you want to use fixed-value reward points for $1,000 worth of travel and each point is worth 2¢, you will have to redeem 50,000 points. If each point is worth 1¢, the travel will cost 100,000 points. There's a lot to be said for this simplicity.

This also makes fixed-value points much easier to use than some of the other types of points. You don’t need any special knowledge to redeem these points effectively. You worry less about whether you're getting a good deal since you typically can shop around before redeeming your points. 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 or safaris. 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. I once redeemed fixed-value reward points for an overnight ferry trip from Nova Scotia to Newfoundland. There's no other way I could have redeemed points to make this a “free” trip.

Weaknesses

  • Limited upsides
  • Vulnerable to price changes

The biggest downside with fixed-value points is that it's hard to get outsized value. This is the tradeoff you make. Simple redemptions and transparent pricing don't allow for maximization opportunities. 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 welcome bonus into a $10,000 first-class flight. That simply isn't possible with fixed-value reward points.

Finally, 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. It also means that last-minute air travel will usually require far more points.

a flight attendant makes up the bed on a first-class seat
You shouldn't book Cathay Pacific First Class with fixed-value points!

Frequent Flyer Miles

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. Nor are miles used to directly offset the cash cost like a travel statement credit redemption. Instead, prices for award seats are set by the program in their loyalty currency. For example, the Alaska Mileage Plan frequent flyer program issues miles as their loyalty currency, which you can redeem for flights.

In general, the cost of travel is determined by either the distance you fly or the region of the world you want to visit. However, this has changed a bit in recent years, as some airlines now use a mixture of dynamic, region-based, and/or distance-based pricing. Prices for award flights also consider the class of service you fly. A business-class ticket costs more than an economy award ticket in these award pricing charts.

Region-based frequent flyer programs charge a flat rate from airports in one region to airports in another region. For example, this could be between the U.S. region and Europe region. Often, pricing starts at a “Saver” (i.e. lowest) level, with tiers of higher-priced award seats, as well. Other programs use distance-based pricing. They may charge more for a flight from Los Angeles to Paris than they charge for a flight from New York to Paris. In general, each route has a fixed starting price — regardless of how much it costs to buy the airfare in cash.

Major frequent flyer programs

The largest miles-based U.S. frequent flyer programs include:

Some popular non-U.S. frequent-flyer programs include:

Strengths

  • Award costs are less impacted by changes in the cash price
  • Book expensive, premium-cabin tickets for a fraction of the normal price
  • Find deals on last-minute tickets
  • Experience, knowledge, and patience are rewarded

Frequent flyer programs are the gateway drug of the points and miles hobby. Since award prices are independent of cash prices, you can find 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 opportunities for 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.

But award tickets generally don't follow the same logic. If the flight is going out half-empty tomorrow, the airline's cost to add 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. Airlines don'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 often happy to open up those spots to folks with miles.

a traveler looks at departure boards at an airport

Weaknesses

  • Often difficult and time-consuming to redeem
  • Confusion regarding how partner award flights work
  • 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 champagne 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. Airlines typically release only a small percentage of their seats as award seats — those you can book 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.

When many people with miles chase a small number of seats, such as around the holidays, finding a reasonable award flight can be difficult. For this reason, frequent flyer miles can be incredibly frustrating if you lack experience.

Compounding things further, 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 allows you 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 instead of using AA miles.

The Double-edged sword

  • Dynamic pricing

Several airlines — most notably, the major U.S. carriers — have made a slow move toward dynamic pricing for their award flights. Rather than release a limited number of award seats at set prices, they make many more seats available. You just have to pay more miles for them. This has taken some of the best opportunities out of the system (but not all). On the flip side, you're often able to find reasonable redemptions more frequently, rather than needing to hunt for elusive award inventory.

It's also easy to overpay — either paying too many miles or too many taxes and fees. An example of this is reward flights where you're getting less than 1 cent per mile in redemption value; that's terrible value for nearly every frequent flyer currency. At that point, it's better to earn cash back, paying out of pocket for a ticket and using your reward points to reimburse yourself.

Related: Point and Mile Values

seats in the economy section of a plane, which you can book with different types of reward points that sometimes charge more or less than a different program selling you the same seat
If an airline expects lots of empty seats, you have a better shot at finding award availability.

Hotel Reward Points

Hotel points are a relatively straightforward type of reward currency. Programs divide their properties into categories and charge a fixed price (or prices within a range) for a free night of accommodation. Some programs have introduced peak and off-peak pricing, mirroring what airlines have done. Examples include Hilton Honors and Marriott Bonvoy — two of the largest and most popular hotel loyalty programs. Plus, there's Accor (mentioned above in the fixed-value section).

Generally, more expensive hotels are assigned a higher category and require more points to book. While this pricing model broadly aligns the award cost with the cash price for a room, the price in points for a given hotel room shouldn't change wildly from one day to the next. For example, in the World of Hyatt loyalty program, 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 — and this won't change much whether you're traveling in June or December.

Strengths

  • Relatively easy to redeem
  • Some aspirational awards available 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 available 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.

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 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. But another great opportunity for outsized value is when cash prices are inflated (near tourist sites or close to holidays) but award pricing is constrained by the hotel program's point charts.

Another big advantage of hotel awards is that having elite status can enhance the value of your points significantly. 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 credit cards offer complimentary elite status or a way to achieve elite status faster with your regular spending.

a lit-up dinner party on the beach at a luxury hotel, which you can book with several types of reward points
Hua Hin Marriott Resort & Spa in Thailand. Credit: Marriott

Weaknesses

  • Lower value than other types of reward points
  • 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. With 60,000 Hilton or IHG points, you might get a free two-night stay at a mid-tier hotel. That many points might not even get you one night at a top property. Yet 60,000 United or American Airlines miles could get you a one-way business-class flight to Europe. If you compare the cash cost of each, airline miles often come out between 2x and 4x more valuable.

Now that doesn't mean you should avoid hotel points. Not at all. I collect plenty. But you should get a feel for their relative value when comparing credit card welcome offers and deciding which card to use for everyday spending.

Lastly, if you like to wander off the beaten path, you'll find pockets of the world where some hotel brands don't have a presence. You won't have trouble using hotel points in New York City, Paris, or Tokyo. But places like Corsica, France and Salvador, Brazil can tell 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.

Transferable Rewards Points

Transferable points are the most flexible type of reward points because you can convert them into other types of loyalty points. These points also can be redeemed for a fixed value through a travel portal, as cash back, or as a statement credit for travel purchases. Many people value them the most since they offer the greatest amount of flexibility.

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. In short, you can't transfer airline or hotel points back into your transferable points account once you have moved them to a travel partner.

Related: How to Consolidate Transferable Points for an Award Ticket

Types of transferable points

The most popular transferable reward points are:

Marriott Bonvoy is a hotel points program. However, it also functions as a transferable reward points currency since you can convert Bonvoy points 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 (such as turning 10,000 IHG points into just 25 Air New Zealand Airpoints).

Strengths

  • Maximum flexibility
  • Easy for beginners and rewarding for experts
  • Less risk of devaluation
  • Easy to earn

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

One can argue that cash is ultimately the most flexible. Some transferable currencies can be redeemed for cash at a reasonable rate, as well. I still recommend redeeming for travel, since this is where the greatest value lies.

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 transferable points because they let you leverage the best parts of every partner program.

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, thanks to its Excursionist benefit. Since both are Ultimate Rewards transfer partners, Chase points allow you to capture the best parts of both airline programs while reducing your risk from a devaluation in either program.

Lastly, these points are among the easiest to earn. Each program has a full lineup of rewards cards that come with lucrative welcome bonuses and award points on your daily purchases.

See the following:

silhouette of a person at the airport; different types of reward points can help you book the same flight, with some charging less than others
With transferable points, you can transfer points to a variety of airlines.

Weaknesses

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

With so many ways to redeem your points, 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 the options, wonder if you're getting the best possible deal. But we'll take too many options over minimal options every time. 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 transferable 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, that simplicity comes at the cost of leaving value on the table.

Collecting Different Types of Reward Points

As you can see, there are many different reward points and 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 a limited number of chain hotels. Thus, you might decide to stay in an Airbnb and use fixed-value points from your Capital One Venture to cover those costs. Having some reward points of various types gives you flexibility when booking your trip and allows you to spend less out of pocket.

The moral of the story: Don't pigeonhole yourself into just one or two favorite programs. Be sure to include some transferable points in your rewards arsenal. The best points are those you can transfer to your favorite hotel and airline programs and use in other ways as needed.

Final Thoughts

If you're just getting started, the world of points and miles can seem overwhelming. Learning the basics is critical. By understanding the different types of reward points, you'll lay a good foundation for learning your favorite programs and redemptions. As you've seen, each different reward type has its own strengths and weaknesses. If you value simplicity, you might want to focus on fixed-value rewards and hotel points. Alternatively, airline miles and transferable rewards can be highly rewarding if you don't mind the effort required to figure out their best uses.

For those just getting started, we cover award booking strategy extensively on the blog. Also, our Facebook community Award Travel 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.

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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!