Redeeming Ultimate Rewards points for cash, miles, and both
/I frequently redeem my Ultimate Rewards points for cash. Not statement credits, not mile-earning revenue airline tickets, but cash, deposited into a checking account.
There are a lot of reasons I do this. Here are a few:
- The least valuable mile or point is always the one you don't redeem. An Ultimate Rewards point sitting in my Chase online banking account is, by definition, not working for me in the way that a dollar deposited into a 6% APY savings account or a checking account linked to a rewards-earning debit card is. That's why I keep my rewards balances as low as possible; when I see my Ultimate Rewards balances creeping up towards 50,000 or more, I know I'm doing something wrong, and it's time for a redemption.
- I rarely value Ultimate Rewards transfers program currencies as highly I value the equivalent amount of cash. Flying United makes me feel like I'm watching a tragedy unfold around me in slow motion; Hyatt points are more valuable, but rarely coincide with my needs; Marriott points are worth fractions of a cent; IHG Rewards points still less; and so on.
- Chase ultimately controls my points as long as they remain in my Ultimate Rewards accounts. I don't have an overwrought fear of being "punished" for manufacturing spend the way some folks do, but Chase's ability to do whatever they want with my Ultimate Rewards balance is a fact, and it needs to be hedged against.
However, one of my goals here is to provide an objective accounting of travel hacking strategies, and I try not to let my own prejudices (like a preference for cash over miles and points) to influence my analysis. So I decided to figure out just what exchange rate is implicit in a variety of theoretical situations, just as I did with the imputed redemption value of hotel points.
Reminder: once you've earned points, speculative valuations are worse than useless
It's a point I've made before (see here for more), with which apparently no one agrees, but it's still true: you should value your point balances and point opportunities in a forward-looking way, based on the redemptions you actually intend to make and informed by the redemptions you have actually made.
The speculative valuations, right or wrong, used to justify acquiring points go out the window once the points have been earned, since the points are worth nothing until redeemed (and invariably lose value the longer they sit unused).
You may have acquired a million Ultimate Rewards points based on a speculative valuation of 2.2 cents each, but they're worth nothing until you redeem them, while the $10,000 you can redeem them for today is worth exactly $10,000. Not only that, but the option value of keeping them in your Ultimate Rewards account isn't free: you're paying $95 per year for that privilege.
If a high speculative valuation (or the obsession with aspirational redemptions some affiliate bloggers use as bait) is keeping you from redeeming your points, it's not helping you make objective decisions – it's blinkering you and playing right into the banking and loyalty industries' hands.
Imputed United redemption values
Starting March 1, 2015, United's Mileage Plus loyalty program is becoming "revenue-based:" the miles you earn for revenue flights are determined first by the dollar value of your ticket (less certain taxes and fees), adjusted for your elite status. As a reminder, here's United's earning chart, starting March 1:
Since (flexible) Ultimate Rewards points are worth 1.25 cents each when used to book paid, mile-earning airline tickets, we can generate the following table (on the assumption that you do or can – at least occasionally – book revenue tickets out of your own pocket, rather than redeeming a more valuable rewards currency like Flexpoints):
The first two values given are fixed, as is your cost per mile when transferring Ultimate Rewards points: no matter your Premier elite status, you're buying United miles for 1 cent each when you transfer Ultimate Rewards points to your Mileage Plus account instead of redeeming them for cash.
The last line reflects the fact that when you redeem Ultimate Rewards points for flights, you're getting more cash value from your redemption (1.25 cents per point) and earning fewer miles (the number depending on your elite status).
That imputed "cost per mile" is the amount of cash value you're foregoing per 100 Ultimate Rewards point when you transfer 100 Ultimate Rewards points into 100 Mileage Plus miles, rather than redeeming the points for a mileage-earning flight; in other words, the price you pay for the additional miles over those you'd earn on a paid ticket.
Starting March 1, a general member of Mileage Plus will be buying more miles (about 93) for her $1.25 in foregone value than a Premier 1K, who buys just 86 miles for the same $1.25 (since both members could redeem 100 Ultimate Rewards points for $1.25 in paid United tickets).
For that reason, it should be easier for a non-elite member to justify transferring miles to United than a Premier 1K, who's buying fewer miles (and foregoing precious Elite Qualifying Miles at the same time).
On the other hand, the Premier 1K may well value her United miles more highly, because of the added flexibility afforded by her status, such as waived close-in booking fees and free award changes and redeposits.
Imputed Delta redemption values
Of course, Ultimate Rewards points aren't directly transferable to Delta Skymiles. However, they are indirectly transferable in that you can book paid Delta flights using Ultimate Rewards points.
On January 1, Delta is adopting the same redeemable-mile-earning structure as United is in March:
This conveniently makes the math the same as shown above, but rather than an equal exchange of $1.25 in foregone ticket value for the difference in miles received, you're paying $1.25 to exchange a smaller number of Skymiles for a larger number of Mileage Plus miles.
In other words, if a general member of Delta values a Skymile more highly than a Mileage Plus mile, they need to value Mileage Plus miles more than 1.33 cents each to justify transferring Ultimate Rewards point to United.
If they value Mileage Plus miles more highly than Skymiles, they can justify transferring points despite valuing Mileage Plus miles less than 1.33 cents each, and so on across the board.
Conclusion
This post was originally supposed to include another line of analysis as well, but it's late on a Friday afternoon and I haven't been able to gather my thoughts quite as cogently as I'd hoped to when I started writing. So that's something to look forward to this weekend!
Instead let me conclude like this: Ultimate Rewards transfers to partners can be the most valuable uses of those points, but they aren't unless you actually redeem them in ways that are valuable to you: never redeem Ultimate Rewards points for less than 1 cent each with a transfer partner (since you can pocket the difference in cash), and when making an airline partner transfer, be sure you're getting more than the imputed value of both your paid airline ticket and the miles (both redeemable and elite-qualifying) you'd earn flying it.
