What’s the difference between earning flexible points, fixed value points, airline miles, hotel points or cash?

Before you start earning miles and points from your credit cards, it’s really important to know what type of points you are earning. There are several types of reward miles/points that banks offer and they can be most easily be divided into four categories:

  • Transferrable (Flexible) Points
  • Airline Miles and Hotel Points
  • Fixed Value Points
  • Cash Back

I’ll go over some of the basics for each of these points below:

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Transferrable (Flexible) Points

There are three banks that give these type of points:

  • American Express Membership Rewards
  • Chase Ultimate Rewards
  • Citi Thank You Points

These points are the most desirable ones to collect for miles and points enthusiasts because of their flexibility. You earn them in your account and can hold them until you have a use for them. You can then transfer them to the program which is most beneficial to you at the time.

With each type of point, you have a number of different transfer partners specific to each program. This is to your advantage because if you have points in each program, you have a multitude of options open to you when you need to book travel. More options means you are likely to be able to book the trip that you want, when you want, for the lowest price. These are the big three of points redemptions (Where, When and How Much).  Therefore, collecting each of these points is best if you do not have a set redemption in mind because this way you are not locked into a single airline’s or hotel’s points program.

The downside of these type of points is that in order to transfer points, you usually have to hold a premium card with an annual fee. You also need to keep your account open (and pay the annual fee) to keep your points. If you decide close your account and still have your points sitting there, you will lose them. Losing points is one of the big no-no’s of collecting miles and points. You can stop this from happening (transferring them before closing the account is one way) but you always need to keep that in mind.

Airline Miles and Hotel Points

The way these type of cards work is usually easier to understand. When you earn points or miles with airline or hotel credit cards, they are deposited directly into your account with that program (not with the bank). Some of the most common programs with credit cards are:

  • American Aadvantage Miles
  • Delta Skymiles
  • Southwest Rapid Rewards
  • United Mileage Plus
  • Hilton Honors
  • Marriott Rewards
  • Starwood Preferred Guest

There are many other programs with offers for their own credit card that earns points or miles. If you tend to fly a specific airline, having their co-branded card can have its advantages. Besides earning miles/points in the respective programs, these credit cards often provide additional benefits such as free checked bags or preferred boarding on airlines or free internet or upgraded room at hotels.

The benefit of earning miles/points with credit cards with these programs is that if you cancel the credit card, you do not lose the points as they are already deposited in your program account. You only need to keep your account active with the airline or hotel (each program has its own specific requirements to do so) to keep from losing your miles.

The disadvantage is that your points/miles are locked into that program. So if that airline/hotel has no availability where you want to go, too bad.

The one hotel program which has additional benefits is Starwood Preferred Guest. With their program, you are allowed to transfer your hotel points from your account to several airline programs (some of which have no other transfer partners). When you transfer points into airline miles, you get a 5,000 mile bonus for every 20,000 points you transfer. This perk makes Starwood points extremely valuable. Many miles/points websites consider Starpoints a flexible point currency instead of hotel points.

Fixed Value Points

By far, these are the easiest points for people to understand. You earn points which are worth a fixed value. Usually  1-2 cents a point. So if you want to book an airline ticket worth $200 and your points are worth 1 cent each, you’ll need 20,000 points. The credit cards that work like this include but are not limited to:

  • Capital One Venture (The one Jennifer Garner does commercials for)
  • Bank of America Worldpoints
  • Wells Fargo Rewards
  • Barclaycard Arrival Miles
  • US Bank Flexperks

These points are easy to use because if there is a ticket available, you can most likely use your points to pay for it. You either have to book tickets through the program’s travel portal or book the ticket/room yourself and apply your balance to cover the payment on your statement, depending on the program. Check with the particular program to make sure how it works before making any reservations.

You believe Jennifer Garner, don’t you? With the ease of redeeming these points, it would seem that they would be the most preferable ones to collect. That may be true if you are only looking to book low cost domestic airfare. It is true that availability with airline miles can be difficult to find for flights within the US. But with fixed value points, if there is a seat available, you can use your points to pay for it. This can serve a purpose in a diversified portfolio of points, it has limitations.

The disadvantage is that you can only get a fixed value for your redemption. Most travelers don’t get into collecting miles and points to redeem them for inexpensive domestic flights. The value in points/miles is using them for something you usually couldn’t pay cash for. Something like that business class ticket to Paris to see the Eiffel Tower. If that ticket cost $2500 cash, you’d need 250,000 fixed value points to get it. As of today, using Delta Skymiles would only cost you 140,000 miles (if you can find availability).

Fixed Value travel cards aren’t very popular because of a similar credit card product which is available and has more advantages.

Cash Back Cards

Cash is still king. When earning Flexible points, Airline miles, Hotel points or Fixed Value points, you always need to remember than you could have been earning cash back instead.

It is very easy to understand a cash back card. Some of the most popular cards are

  • Citi Double Cash
  • Fidelity Rewards
  • Discover It Cash
  • American Express Blue Cash
  • Capital One Quicksilver (the one Samuel L. Jackson sells)
  • Chase Freedom and Chase Freedom Unlimited

The Citi Double Cash card and the Fidelity Rewards card both earn 2% cash back on all purchases. Citi pays 1% when you make the charge and 1% when you pay the bill. Fidelity pays the 2% back as a deposit into your Fidelity account (so it helps if you already do some banking or investing with them). The Chase Freedom Unlimited earns 1.5% back on all purchases.

The Discover It, American Express Blue Cash and Chase Freedom all earn back 1% on most purchases. They also have bonus categories where you can earn additional money back in certain categories like restaurants, gas and groceries. Both the Chase Freedom cards also have the advantage of that if you have an another Chase Ultimate Rewards card that earns flexible points, you can transfer your Freedom points to that account. When you do that, the cash back points transform into flexible points.

Comparing a cash back card to a fixed value card, you see that since you can earn at least 2% on any purchase, only earning 1% back on a fixed value card just doesn’t make sense.

Conclusion

So which points should you collect? That does depend on what travel goals you have. I personally have a combination of all of these cards except for a fixed value card. Most of my spending goes onto cards with flexible points (including Starwood points). I do have a cash back card which I use to maximize bonus categories as I value 5% cash back more than any point I could earn. Your Mileage May Vary on which card or combination of cards works the best for you. Understanding the difference between the types of points or miles you can earn with credit cards allows you make an informed choice when deciding which ones to apply for …and now you know.

 

 

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