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With any rewards program, the value of points often depends on what rewards you redeem. That also means the value you get from a rewards or frequent flyer credit card largely depends on whether or not you can use the points and other perks to justify the card's fees, rates and any other costs. So, let's take a look at how to work out this value, as well as what else to think about when you're looking at a rewards card.
Steps to calculate the value of rewards points
An important detail to note: there is no fixed, dollar value for points when you're redeeming them. This is because the number of points you need for a reward varies depending on what you redeem them for and the actual rewards program.
But you can get an idea of what your points are worth for any reward using the following steps:
Estimate the retail value of your chosen reward
For example, if you wanted to redeem your points for a flight, you could go to the airline's website and search for flights on your chosen travel dates. Or, if you wanted to use points for a coffee machine, you could search for a similar model sold at different retailers. With gift cards and other similar cashback rewards, the value is already established (e.g. a $100 gift card = $100 value).
Divide the cost of the reward by the number of points needed
This gives you the value of each point and is usually a fractional number. For example, if you wanted to redeem 36,000 points for a flight that retails for $533, the result of this calculation would be $0.0148 (or about 1.5 cents).
This gives you the value of each point, but comparing cents (or fractions of cents) is sometimes confusing when you're looking at different reward options. If you find that's the case, a simple solution is to look at the value you get for every 1,000 points redeemed. You can do this by adding a third step:
Multiply the value per point by 1,000
This usually gives you an answer that's in dollars and can be easier to compare, because most of the time you'll be redeeming thousands of points for a reward anyway. So with the example reward flight in step 2, you would get $14.80 worth of value for every 1,000 points used.
How to write this as a calculation
Using the example of a reward flight above, here is how the basic calculation per point would look:
533/36000 = 0.0148 (or 1.48 cents per point)
Here is how the calculation looks per 1,000 points – keeping in mind that you do the calculation in brackets before anything outside the brackets.
Treat your points like cash when you're redeeming them. If you are rewarded with vouchers or gift cards, shop for items that are on sale. With frequent flyer rewards, go for the flights that are more expensive and generally never marked down.
For example, a domestic flight from Melbourne to Sydney may be as low as $85, while one going to London could cost $1,630. If the domestic flight costs 7,000 points with the rewards program and the international one costs 62,500 points, the value of flying to London using your rewards is higher.
Using the value per 1,000 points calculation, the international flight would offer you $26.08 per 1,000 points, while the domestic flight would offer you $12.14.
If you want to know how many points you'll earn from using your credit card, the easiest way to calculate it is to multiply the card's earn rate (points per dollar) by your average spending.
For example, spending $4,000 a month on a card that earns 1 point per $1 equals 4,000 points per month and 48,000 points per year (4,000 points per month x 12 months). All you need to do to work this out is check your credit card points rate, spending and open the calculator on your phone.
What else do I need to think about?
The value you get from reward points – sometimes known as the "points currency" – is influenced by many factors. Some of the other key details to think about include:
Additional reward costs. Some rewards attract additional fees and charges. For example, flights might have airline fees and taxes, while retail items like coffee machines could attract shipping costs. So before redeeming, check whether these expenses are charged separately or factored into the points needed for a reward.
Point transfers. If you want to transfer credit card reward points to a frequent flyer program, be aware that the transfer rate could affect the value you get from your points. For example, if 2 credit card points transferred to 1 frequent flyer point, you'd end up with half as many points after the transfer. But if that meant you got a higher-value reward flight, it could be worth it. You can compare point transfer rates for credit card reward programs in this guide.
Credit card costs. The annual fee, interest charges, international transaction fees and any other charges you often pay for your credit card can offset the value you get from reward points. Ideally, you should get a card that has fees which are lower than the value you think you will realistically get from rewards.
A reward or frequent flyer credit card is only really worth it if the benefits outweigh the card's annual fee, interest charges and other costs. As points are one of the biggest perks on these cards, working out the potential value you can get from them makes it easier to compare and find a card that fits with your goals.
Frequently asked questions
Fees are used to help offset the cost for the bank making finding a card without any difficulty.
Some cards do have a point cap, which could decrease its value for you depending on how much you spend a year using a credit card.
There is going to be eligibility requirements for any credit card, including those that are a part of a rewards program. Your age and residency for example could determine if you are able to be approved for a rewards credit card.
Amy Bradney-George has been writing about personal finance for more than 13 years – including over 600 articles as a senior writer for Finder. Her work has also appeared in publications including Money Magazine, The Sydney Morning Herald, Financy, ABC News Australia and Equity Magazine. Amy has a Bachelor of Arts in Journalism and Drama from Griffith University.
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