It’s easy to think of points and miles as variations on Monopoly money. They are easily discarded and consumed carelessly.
But for others, travel rewards are easy to hoard. After all, they are a form of currency, and we can be as stingy with our stash of points as we are with our hard-earned savings account balances.
However, there’s a very important difference between travel rewards and cash: Unlike most real currencies (which can appreciate if invested wisely), your points and miles will almost certainly depreciate in value over time.
In other words, points and miles are not a good long-term investment. The sooner you spend them after you acquire them, the more value you’re likely to get.
Let’s take a look at why carrying a lot of points and miles with no plan to use them is a bad strategy. This will help you avoid disappointment, heartache, and possible loss of net (reward) value.
Related: Start traveling with points, miles, and credit cards
Points and miles depreciate
In recent years, we’ve seen a number of shocking devaluations in some of our favorite loyalty programs. A general rule of thumb is that transferable rewards are less likely to lose value than rewards in frequent flyer or hotel programs.
Travelers can usually redeem such points at least for a fixed price.
But even transferable currencies take a hit from time to time. For example:
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Unfortunately, devaluation is more common within airlines and loyalty programs, and variations include:
What about cash?
Even if you collect and redeem points at a fixed value (which is the case when you have a card like the Capital One Venture Rewards credit card, a popular option that lets you offset paid travel at a rate of 1 cent per mile), your rewards will still lose value over time.
The U.S. Bureau of Labor Statistics estimates that major item inflation rose 3% over the past 12 months.
What if you chose cash from the start? We like to think of our travel rewards as “free,” but you’re sacrificing miles every time you swipe a rewards card instead of a cash back card.
If you’re just having your hard-earned points and miles deposited into your account, it might be more advantageous to opt for a cash back card so you can see immediate returns on your purchases.
How to redeem points for maximum value
Redeem your points and miles regularly to avoid your balance growing too high. If you find yourself with hundreds of thousands of points but no travel on your calendar, figure out when your next vacation is and start planning.
If you’re in the enviable position of earning more points than you can spend, consider sharing your wealth with friends or family while they still retain their current value.
You might even consider switching to a cash back credit card. If you don’t use your points and miles quickly enough, you can end up with too many points and miles. Earning cash during this period is a viable option if you know you can replenish your loyalty account quickly.
Another important form of conservation involves diversification. Currencies transferred to multiple airline and hotel programs are not immune to devaluation, but they still offer more redemption options if an airline or hotel program changes dramatically.
So if you don’t already have a card that earns transferable points, now is the perfect time to consider one.
Related: Airline Credit Cards vs. Travel Credit Cards: Which Is Best?
bottom line
Points and miles can yield impressive returns today and relatively modest returns tomorrow. In short, this currency is not suitable for investment because you are at the mercy of a program that can and occasionally will increase the price without warning.
So follow the “earn and burn” philosophy to get value from your miles before they depreciate. If you haven’t done so already, check out the points you currently have and make sure you can use them before the next wave of inevitable depreciation arrives.
