How to Calculate the Value of Your Travel Rewards Redemption

A good redemption is a high-value redemption.

Many of the best travel rewards credit cards have transferable rewards points, which are flexible points that can be transferred to the issuer's travel partners. This means you can turn your rewards into hotel points or frequent flyer miles and redeem them for free stays and flights.

While transferring your rewards points to a partner is often the key to getting the best per-point value from your rewards, this process has a big drawback: The actual value you get from your rewards will depend entirely on how you redeem them.

Not only does this make it challenging to compare travel cards and their rewards rates, but it makes it a frustrating process to determine how much value you actually got from your redemption. Fortunately, with a little bit of math and research it's possible to figure out your travel rewards' value.

The basic formula

Figuring out how much money you earned for your rewards is actually more research than it is calculations. You can break it down into three steps:

Step 1: Determine the cash value of your redemption

This step is where you'll do most of your research, as you'll need to look up what it would cost you to book your hotel room or airfare using cash instead of rewards. The easiest way to do this is usually to visit the hotel or airline website and use their tools to research similar bookings.

For the most accurate valuation, you'll want to find a booking as similar to your award as possible. So, if your award hotel room features a king-size bed and courtyard view, look for a similar room when researching the cash value. Similarly, if you're staying on a Saturday night, be sure you're not looking at bookings for a Wednesday; both hotel and flight bookings can vary significantly based on the day of the week.

Step 2: Figure out your total rewards cost

If you're only trying to value the hotel points or airline miles you used, just look at the total rewards cost of your redemption and move on. However, if you're using transferable rewards, this step can be a bit more complicated.

That's because the transfer rate can vary based on the program and partner. Many partners offer 1:1 transfer rates -- one mile for every one point transferred -- but there are outliers with every program.

For example, when you transfer Amex Membership Rewards points to Delta, they transfer at a 1:1 rate, so you get 1,000 Delta SkyMiles for every 1,000 Membership Rewards points you transfer. However, the rate for Membership Rewards to JetBlue is 1.25:1, which means you need to transfer 1,250 Membership Rewards points to get 1,000 JetBlue TrueBlue miles. You'll also need to take into account and transfer bonus offers that applied at the time of transfer.

To get the true value of your rewards redemption, you'll want to figure out how many travel rewards you transferred to make your redemption possible. You'll also want to note the total number of hotel points or airline miles you used.

Step 3: Divide the cash value by the total number of points/miles

The final step is to divide the cash value of your redemption by the number of points or miles you redeemed. If you didn't transfer at a 1:1 rate, you can do the calculation twice to see the value of your hotel or airline rewards as well as your transferable travel rewards.

Let's look at an example: Suppose you transferred 60,000 Chase Ultimate Rewards points to Virgin Atlantic at a 1:1 ratio, giving you 60,000 Flying Club miles. You redeemed those miles for an international business class flight that normally costs $3,500 in cash. If you divide $3,500 by 60,000, you find that you got a value of $0.058 per mile. And, since the transfer ratio was 1:1, this means you also got $0.058 per point.

The higher the value, the better the deal

So, you have the per-point value of your rewards -- now what? How do you tell if it's a good value or a bad one? While $0.01 per point might be a solid value for one type of currency, it could be a bad value for another.

As a general rule of thumb, you want to get a better per-point value from your travel redemption than you could have received if you redeemed those rewards for cash or for travel through the issuer portal, whichever is higher.

For instance, you can turn Citi ThankYou points into cash or book travel through the Citi portal at a rate of $0.01 per point. So, if you got $0.02 per point out of your rewards by transferring them to a travel partner and redeeming them that way, then you got twice as much value from your rewards as you would have otherwise. That's a win!