5 things to know about credit card reward valuations

Calculating the value of a rewards point can help you figure out which cards aren’t really as lucrative as they seem. It can also help you pick out the rewards purchases that are worth spending points or miles on — and which ones you’re better off purchasing with cash.

When comparing credit card rewards programs, keep the following in mind:

1. The value of a rewards point may change, depending on who’s issuing it

Unfortunately, there is no universal system for valuing credit card rewards points. That can make it tough to compare cards.

Rewards points given to you by one card issuer, for example, may be worth a little more than 1 cent each, while points awarded by another may be valued at half that amount.

The value of the same credit card rewards point could also change, depending on how you decide to use it.

For example, an issuer might assign a higher value to a rewards point that you redeem for travel but a lower value to another rewards purchase, such as gift cards or merchandise. Similarly, it may require a few thousand points for one type of gift card but a larger number of points for a different one. The value of a single rewards point is rarely constant.

An issuer could also change how it values rewards points and miles at any time.

Capital One, for example, made waves when it slashed the value of its Capital One Venture Rewards Credit Card and Capital One Spark Miles for Business miles when they’re redeemed for non-travel-related purchases. These days, cardholders with a Venture or Spark miles card have to spend significantly more miles to purchase certain types of gift cards or redeem them as statement credits. Capital One miles are among the most flexible reward currencies available, but you won’t get as much value out of those rewards depending on how you redeem them.

2. Expect to get at least 1 cent back for every point you spend

In general, you’ll find that many — if not most — rewards credit cards value their points at about a penny each, and sometimes slightly more. So, for example, if you earn 10,000 rewards points, you can redeem those points for a gift that’s roughly worth $100.

But a point valuation of essentially 1 cent for every dollar you spend isn’t universal. An issuer may ask you for 12,000 rewards points in exchange for a $100 gift card (thus making them worth only $.008 each). Or, it may ask you for 14,000 rewards points in exchange for a $100 necklace (making them worth only $.007 each).

By the same token, rewards you use for merchandise, charitable gifts or directly at checkout are often worth significantly less than those you trade in for gift cards or travel.

Since there’s no set system for valuing rewards points, issuers can do it any way they want. That can make it tricky to compare rewards programs and make the most of your rewards cards.

3. To get the most from your rewards cards, don’t be afraid to do some math

Before you settle on a new card or rewards program, pull out your calculator and check whether the number of points an issuer is asking you to spend is reasonable compared to other cards or possible rewards purchases. You may find it takes significantly more points to buy a $500 airline ticket from one issuer than it takes to buy the same exact kind of rewards travel from another.

To calculate how much value you’re getting out of a rewards purchase, divide the value, in dollars, of what you’re trying to redeem by the total number of points or miles a card issuer is asking. For example, if you’re purchasing a $400 plane ticket for 35,000 miles, you’ll divide 400 by 35,000 to get 0.011. So, that redemption makes your mile worth $0.011 or roughly 1.1 cent.

Compare the rewards values different issuers are offering and think carefully about the types of rewards purchases you’re most likely to make.

If you prefer gift cards to travel, you’ll want to avoid a card that devalues points you redeem for gift cards. And, if you’re angling for a free long-distance flight, you’ll get more value for your money by picking a card that values points you redeem for travel at a significantly higher rate.

4. Be suspicious of cards that offer an unusually large number of rewards points

When it comes to rewards points, if it seems too good to be true, it probably is.

If you see a card that offers an unusually large number of rewards points in exchange for minimal spending, do some math before you get too excited. Chances are high that those points are worth just a fraction of the value of the average credit card rewards point.

Many cards offer an inflated rewards rate that, at first glance, seems like a stellar deal. However, when it comes time for redemption, the issuer frequently requires a huge number of points to buy anything of value.

Before you apply for a card that seems unusually lucrative, check out its redemption page. Card issuers don’t always make this information public, but some do. If you can, look at how many points it costs to purchase something, such as a gift card or a one-night hotel stay, and compare it to the actual value of the purchase.

5. You’ll often get the most value out of your rewards by redeeming them for travel

In general, you’ll find that points you trade in for travel are worth significantly more than points you use for other types of rewards purchases. That’s especially true for travel cards that encourage users to spend their points on free airfare and other travel purchases.

Some cards even offer a redemption bonus when you use points to book a trip. For example, the Chase Sapphire Preferred Card offers a 25 percent redemption bonus when you redeem your points for travel through the Chase Ultimate Rewards portal, and the Chase Sapphire Reserve card offers a 50 percent bonus. As a result, Ultimate Rewards points that are used for travel may be worth as much as $.0125 to $.015 each.

Rewards experts have also found that trading points in for luxury hotel stays or transferring them to airline loyalty programs can be an effective way to make the most of your rewards. Depending on the airline or hotel program you transfer points to, the maximum value for your rewards could exceed well over 1 cent each.

Bottom line

There’s no guarantee of what you’ll get when it comes to credit card rewards points, so it pays to be cautious and do your research before you redeem the points you’ve spent so much time collecting.

It’s also a good idea to calculate the value of a credit card rewards point before you apply. That way, you can be confident you’re picking the best card that aligns with your spending.