Why points and miles are a bad long-term investment
It's easy to think of points and miles as a variant of Monopoly money. To some, they're easy to throw around and spend nonchalantly; they can almost seem ethereal.
To others, travel rewards can be easy to hoard. They are a form of currency, after all — and we can become as stingy with our reservoir of points as we are with our hard-earned savings account balances.
However, there's one very important distinction between travel rewards and cash: Unlike most true currencies, which have the potential for appreciation if invested well, your points and miles are almost guaranteed to lose value in the long run.
Get the latest points, miles and travel news by signing up for TPG's free daily newsletter.
In other words, points and miles are a terrible long-term investment. The sooner you can spend them after you earn them, the more value you're likely to receive. Early 2022 has reminded us of this with a handful of extremely painful hotel devaluations.
Let's look at why carrying large balances of points and miles with no plan to use them is a bad strategy, so you can avoid setting yourself up for disappointment, heartache and a possible loss in net (loyalty) worth.
Related: Travel is back. Now, points and miles devaluations are (likely) coming
Devaluations
In the past several years, we've seen a number of egregious devaluations from some of our favorite points programs. The general mantra is that transferable points such as Chase Ultimate Rewards are slightly more insulated from devaluations than an individual frequent flyer or hotel program. Points like these can be redeemed for a flat cash rate, at the very least.
But even transferable currencies take a beating now and again. For example:
- Citi ThankYou points were once worth up to 1.66 cents toward American Airlines flights and 1.25 cents toward other travel booked through the Citi ThankYou travel, depending on the card you had. They are now worth a flat 1 cent each.
- Chase Ultimate Rewards has lost transfer partners over the years, and some of its best partners have completely razed their loyalty programs.
- American Express Platinum Card® for Schwab cardmembers could once cash out their Amex Membership Rewards at a rate of 1.25 cents each. The rate is now 1.1 cents.
Devaluations happen so often that it can be easy to forget just how many we experience in this hobby. While some are worse than others, here's a brief overview of some of the other major changes that have happened in just the last year.
Hyatt adds peak and off-peak rates, moves many properties to a higher category
Hyatt has managed to remain a bright spot in the "free travel" world, always offering reliable award prices and a great value for its points.
That's still largely the case, but it recently took an aggressive swing at some of its customers' favorite destinations. Properties such as the Park Hyatt Paris Vendome, Park Hyatt Sydney, Andaz Maui, and more are raising prices by 33%. Standard rates catapult from 30,000 points per night (Category 7) to 40,000 points per night (Category 8).
Many other desirable Category 4 hotels are increasing in price, as well — making the annual free night that comes with the World of Hyatt Credit Card less valuable.
Hyatt has also recently introduced peak and off-peak pricing, making it harder to find good deals at seasonal properties like ski resorts and beaches.
Related: Suddenly, my Hyatt free night certificates feel nearly worthless — book these 24 hotels now
Marriott eradicates its award chart
Marriott is through with coy devaluations. They recently announced they will be tossing their current award chart in the bin.
Marriott will move to "dynamic pricing" beginning March 29, 2022. Award prices will still allegedly remain within their current parameters at most properties, but that's expected to change in 2023.
Plus, Marriott announced that 200 hotels would get significantly more expensive — up to 30,000 points per night. That means you could pay up to 120,000 points per night for its best properties.
Related: Marriott reveals start date for dynamic pricing; redemption rates increasing by up to 50%
Alaska Airlines award charges
Earlier this month, Alaska Airlines tweaked its award chart to give itself room to charge more for award flights on its partner, American Airlines.
Alaska Airlines previously capped the number of miles it cost to fly on AA. Now, prices will "vary depending on demand." Oftentimes, that's a euphemism for "prices are going up."
Alaska Airlines also raised prices on its own first class awards by more than 35% in some cases.
Related: Alaska Airlines is making major changes for the worse
Emirates premium cabins increase in award price
Emirates is (and will remain for the foreseeable future) one of the absolute best premium cabins in the sky. Whether you're trying to book its new game-changer first class seat or a business class ticket on an A380 to enjoy the premium cabin bar, the airline offers bucket-list experiences.
Emirates seems to know what they've got, too; it has raised premium cabin flight prices considerably in the past year. Several one-way business class flights from the U.S. have increased by more than 15,000 miles. We've noted price increases of up to 16%. This is after the airline devalued its first class awards in 2021.
Related: Emirates Skywards devalues again by raising one-way business-class award prices
Delta inflates partner awards
Delta has always been the industry leader of devaluations, and that hasn't stopped in recent months.
For example, it sharply raised the price of partner awards to Europe and Asia. You'll pay between 120,000 and 170,000 miles one-way. That's unreasonable, and it's forcing points and miles collectors to shun Delta, save for random award sales here and there.
Related: Delta devalues partner awards to Europe and Asia
What About Cash?
Even if you're collecting and redeeming them at a fixed value (the Capital One Venture Rewards Credit Card, for instance, allows you to offset paid travel at a rate of 1 cent per mile), your rewards still lose value as time goes on. The U.S. Bureau of Labor Statistics estimated the inflation rate from Jan. 2021 to Jan. 2022 at 7.5%, meaning for every $1,000 in fixed value rewards you had saved up at the beginning of last year, you can only buy $925 worth of travel today. And things have become even more out of hand since January.
What if you'd opted for cash from the beginning? We like to think of our travel rewards as "free," but every time you swipe a rewards card instead of a cash back one you're sacrificing money for miles. This creates an opportunity cost, which we can peg at roughly 2% per $1 spent thanks to cards like the Citi Double Cash® Card (see rates and fees), which offers 1% when you buy and 1% as you pay (effectively 2% back everywhere).
Related: Best cash-back credit cards for 2022
If you'd chosen to earn cash back instead of points, you could have invested that money for growth instead of watching the value of your rewards erode over time. Whether you opt for a fixed-value investment such as a CD or a bond or pursue something riskier (but potentially more rewarding) like stocks or real estate, you should consider earning rewards that have the potential to grow for you over time — that is, if you aren't planning to spend them in the near future.
Related: Tips on how to become financially independent
What to do to protect yourself
Redeem your points regularly. Don't let your balances creep too high. If you find yourself with hundreds of thousands of points but no trips on the calendar, figure out when your next vacation is and start planning!
If you're someone in the enviable position of earning more points than you can spend (thanks to massive limited-time offers), consider sharing your wealth with friends or family members.
You might even consider switching to a cash back credit card. There can be such a thing as too many points and miles if you can't spend them fast enough. If you know you can quickly replenish your loyalty accounts, earning cash in the interim is not a bad decision at all.
Related: Cards currently offering sign-up bonuses of 100,000 points or more
The other great form of protection involves diversification. Currencies that transfer to many airline and hotel programs, as covered above, aren't impervious to devaluation — but they still offer far more redemption outlets if one airline or hotel program makes a nasty change. For example, if you have a Chase Sapphire Preferred Card and United MileagePlus announces a big devaluation, you can always transfer your points to Air Canada Aeroplan to book Star Alliance award flights.
So if you don't already have a transferable points card, now's the perfect chance to pick one up.
Diversification goes beyond credit card rewards too. If you usually shop through the Delta SkyMiles shopping portal, consider using the American shopping portal for a couple of months instead. This will help you build a balance with another loyalty program, giving you more award flight options and protecting your overall mileage balance from a possible Delta devaluation.
Related: The power of the Chase Trifecta: Sapphire Reserve, Ink Preferred and Freedom Unlimited
Bottom line
Points and miles can give you a massive return today and an unremarkable return tomorrow. They're not for investing.
So, live by the "earn and burn" philosophy and get value from your miles before they devalue. If you haven't already, take a look at the points you have right now and make sure you have a plan to use them before the next wave of inevitable devaluations strikes.