How to Value Credit Card Points
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Most rewards credit cards fall into two camps: cash back and travel points. With cash back credit cards, the rewards you earn are clear: it’s a percentage of every dollar spent. For example, you may earn 1% cash back on all purchases. With travel credit cards, however, the exact value of your rewards aren’t always so straightforward; that’s because you earn points. As they accumulate, these points can then be redeemed for goods and services at a later date, like flights, hotels or electronics. But how do you know which credit card used and point earned will give you the best value for your spending habits? The answer can be tricky to determine.
How much are credit card points worth? It depends
To find out which credit card provides the best rewards, we need to know how many points are awarded for every $1 spent. We also need to determine the value of the goods and services the points can be redeemed for. For example, the value of a point when redeemed for a flight may be different than the value of a point when redeemed for merchandise such as electronics - even within the same points program. Your individual preferences also play a role in how much your points are worth. So, if you value merchandise on Amazon.ca more than a flight on Air Canada, you'll want to account for that fact as you begin to compare which is the best rewards credit card for you.
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Start with the critical information1. How many points are awarded per $1 spent?:
Be aware that not all purchases result in the same number of points earned. The points you earn depend on the credit card and purchase category. For example, swiping your TD First Class Travel Visa Infinite Card almost everywhere gets you 3TD points per $1 except for purchases made on the ExpediaforTD website, which earns you 9TD points per dollar. On the Scotiabank Gold American Express, however, you earn 4 Scotia points for every $1 spent on gas, groceries, dining out and entertainment, and 1 Scotia point per $1 on all other purchases.2. What those points can buy?:
The credit card issuer will also specify how many points must be redeemed for a given good or service. While sometimes this can be straightforward, such as in the case of Scotia Rewards where one point always equals to $0.01 when redeemed for travel, other times, valuing points can become difficult as the number of points you need to redeem can fluctuate based on the travel destination - like for the Aeroplan Program.
For example, with Aeroplan, a round-trip flight from Toronto to Los Angeles will cost you 25,000 miles, and you will also have to pay for taxes and surcharges. To determine the value of an Aeroplan mile for this flight, we will use a flight ticket price of $700 including taxes of $180 (the average for a round-trip from Toronto to LA). First, we will deduct the taxes to find your net gain when redeeming 25,000 miles: $700-$180 = $520. As taxes have to be paid in addition to the required point amount, 25,000 miles is worth $520. Finally, divide $520/25,000 to determine the value of one mile for this specific flight - which equals to $0.0208. It's important to note that the value of one Aeroplan mile would be different if you were flying to somewhere other than Los Angeles.
Movies are another instance where a set number of points don’t necessarily translate into one specific dollar value. For example, 1,000 Scotiabank Scene Points will get you a free general admission movie ticket ($12.99 value). But for a premium ticket to a bigger and better screen, such as IMAX or 3D, you'll need a minimum of 1,500 Scene Points.
Since the value of points varies drastically by credit card type, we have done analysis for each of the major credit card providers and programs (it is important to also consider how many points each program rewards for every dollar spent):
3. How much value do you get back per $1 spent?:
Once you determine the value of each point, you'll want to calculate how much in rewards you'll get back for your everyday spending. For example, the value of 1 TD Point is 0.005. Since the TD First Class Travel Visa Infinite earns you 3TD Points per dollar on gas purchases, you would multiply 3 and 0.005 to get 1.5. This means you would get a return of 1.5% (or 1.5 cents) per dollar you spend at the pump.
Follow the formula
To compare the value of different rewards programs, keep the following question in mind:
On a percentage basis, what is the reward per $1 spent?
To answer this question, follow these steps:
- Determine the number of points earned per $1 spent
- Determine the value of one point (Reward value / Points required for reward)
- Multiply the value of one point by the points earned per $1 spent
For example, let’s say you have the Scotiabank Gold American Express credit card that gives you 4 points for every $1 spent on gas, groceries, restaurants and entertainment, and 30,000 points gets you $300 worth of travel.
- Points earned per $1 spent: 4
- Value of one point: ($300/30,000 = $0.01)
- Value of $1 spent: $0.01 x 4 = $0.04 or 4%
The Scotiabank Gold American Express credit card gives you 4% back per dollar spent on gas, groceries, restaurant and entertainment. How does your rewards credit card compare?