Rule of Thumb for Redeeming Credit Card Points

It's typically advisable to redeem credit card rewards points for as much value as you can obtain. After all, your points are a currency much like dollars, although in a different and unofficial form. When picking your alternatives, the rule of thumb is to stay with redemption options where your points are worth at least 1 cent apiece. 

But how can you know which redemption alternatives provide you the greatest value? Some redemption choices—including gift cards and merchandise—are notoriously lousy ways to redeem your points compared to alternatives like vacation or cash back. We'll help you figure out which redemption choices to go for—and which to avoid.

Key Takeaways

• The rule of thumb is to redeem your points for 1 cent per point or more to make sure you're getting a decent price. 
• Airline tickets and cash back for vacation are generally the most beneficial methods to redeem your points.
• Gift cards and items are frequently the lowest-value options to redeem your points. 
• You may determine the worth of your points by dividing the dollar value of the prize by the number of points required to earn it.

What Is the Rule of Thumb for Redeeming Credit Card Points?

The rule of thumb for redeeming credit card points is to strive for a redemption value of at least 1 cent per point. 

This implies if you can make more than 1 cent each point, you're doing quite well. If you're earning less than that, you're definitely not getting good value out of the offer, and it could be worth finding out an alternative redemption option or perhaps another rewards credit card.

How Does the 1-Cent-Per-Point Rule Work?

Some credit cards, like the Citi Double Cash Card, only provide you one choice for redeeming your rewards: cash back. And these cards may give considerable value. The Citi Double Cash Card, for example, gives 2% cash back on all of your transactions, which is better than the 1.5% cash back given by most flat-rate cash-back rewards cards. 

But most rewards cards—especially ones that function on a points- or miles-based system—offer various options to redeem your benefits, including:

• Cash back 
• Airfare 
• Hotel stays
• Merchandise 
• Gift cards

Each of these possibilities can be more or less beneficial, depending on the rewards program.

We evaluated the 1-cent-per-point guideline by looking at the potential ways most customers may redeem points using rewards credit cards. Then we computed an average point value from among the 220 rewards cards in our card database. The average redemption rate for common redemption choices across the rewards cards in our database is 1.20 cents apiece, which outperforms the rule of thumb. 

In general, here's how much value you can anticipate to get—on average—if you pick each of these redemption options:

Some redemption alternatives are extremely awful, like items and gift cards, therefore we don’t include them in our database averages. Still, you may verify the points worth for products and gift cards by checking in to your card’s rewards page and performing some arithmetic. 

Here are a few of examples of how this might work, utilizing points pricing from a prominent travel rewards system and the manufacturer’s recommended retail price:

• A Weber portable barbecue costs 25,000 points on the portal and retails for $69.99 on the manufacturer's website. The math: ($69.99 / 25,000) * 100 = 0.28 penny per point
• A Ring security alarm set costs 57,500 points and retails for $199.99 on the brand's website. The math: ($199.99 / 57,500) * 100 = 0.34 cent per point

This is also how you compute the per-point value of gift cards, however the method is a bit quicker because you already know the dollar value of the card:

• A $25 Amazon gift card costs 10,000 points: ($25 / 10,000) * 100 = 0.25 penny per point
• A $100 Lowe's gift card costs 30,000 points: ($100 / 30,000) * 100 = 0.33 penny per point

As you can see, redeeming your points for items and gift cards may (and frequently does) yield a fraction of the value of alternative choices. 

How Can I Calculate the Value of My Points?

You may determine the worth of your points by dividing the value of your reward (in dollars) by how many points it takes to acquire. 

The worth of your points might be straightforward to compute in certain circumstances, such for cash back. For example, if it takes 10,000 points to get $100 in cash back, your points are worth 1 cent each ($100 / 10,000 = $0.01). 

But in other cases—like with plane tickets—you may need to search out the amount individually. For example, let's assume you want to purchase a trip to Las Vegas that costs 15,000 points. If you check up the price of the trip on the airline's website and discover that tickets on the same aircraft are selling for $300, then your points are worth 2 cents apiece ($300 / 15,000 = $0.02), which is a decent value.

Grain of Salt

Redeeming your points for at least 1 cent apiece is a decent rule of thumb, but it's not a guideline you need to follow to necessarily. 

If you don't have enough money for a trip and you'd personally gain a lot of satisfaction by going, it can be worth spending the points to travel even if it's not a "good" value on paper. In other circumstances, you may need to cancel a card out straight away without caring about the optimum redemption value—you need to spend the points or you’ll lose them. Or you might not be interested in the greatest accessible option—not everyone is able or interested in travel, for example. 

But in general, if you follow to this as a basic rule, you'll be sure to obtain the greatest value for your points.