When are more points worth more than fewer points?

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Back in January I posed the rhetorical question, "Should all manufactured spend go through American Express gift cards?" and outlined a number of practical problems with using American Express gifts cards to manufacture spend (cards are shipped to your door activated, orders are sometimes inexplicably denied, American Express cards aren't accepted everywhere), as well as the significant advantages of fusing 1.5% or higher cash back onto everyday manufactured spend.

I concluded with a more speculative argument that "within reason, more points are more valuable than fewer points."

I want to dig a little deeper into that premise.

Comparing bonused spend to cash back

All manufactured spend should be divided, not into cash back versus miles and points, but into bonused and unbonused spend.

Theoretically, all unbonused manufactured spend would be better pushed through American Express gift cards purchased through a sufficiently lucrative cash back portal than if made directly with the credit card.

But that theoretical statement is not nearly as strong as it appears: many forms of unbonused manufactured spend are, for one reason or another, not accessible when using American Express gift cards.

The real issue arises when deciding between bonused spend and unbonused spend, when that unbonused spend is fused with cash back earned through American Express gift cards.

For example:

  • A Hilton HHonors Surpass American Express card used at grocery stores earns 6 HHonors points per dollar. An American Express gift card bought at 1.5% cash back earns 3 HHonors points per dollar, plus 1.5% cash back.
  • A US Bank Flexperks Travel Rewards card used at gas stations earns 2 Flexpoints per dollar. An American Express gift card bought at 1.5% cash back earns 1 Flexpoint per dollar, plus 1.5% cash back.
  • A Chase Ink Plus card used at office supply stores earns 5 Ultimate Rewards points per dollar. An American Express gift card bought at 1.5% cash back earns 1 Ultimate Rewards point per dollar, plus 1.5% cash back.

The conceit here is obvious: 1.5% cash back ($15 per $1,000 in manufactured spend) is worth somewhat more than 3,000 HHonors points, roughly the same as 1,000 Flexpoints, and much less than 4,000 Ultimate Rewards points.

When are more points worth more than fewer points?

With all that being said, there's a reason I still manufacture HHonors points and Flexpoints at grocery stores and gas stations, and it's a function of my (extremely qualified) claim that, within reason, more miles and points are worth more than fewer miles and points.

The reason I stress the phrase "within reason" is that you should be redeeming your miles and points roughly as quickly as you earn them. When, and only when, you're doing so, there are advantages to having somewhat higher points balances rather than somewhat lower ones.

There a few reasons this is true:

  • 5th night free benefits. Hilton, Marriott, and Starwood offer the 5th night free on 5-night award redemptions (Hilton for elite members, Marriott for all members, Starwood only at Category 3-7 properties). While the Marriott Rewards and Starwood Preferred Guest co-branded credit cards don't have bonused spending categories where it's easy to manufacture spend, Hilton does. If you foresee 5-night stays in your future, bonused spend on the HHonors Surpass American Express earns the equivalent of 7.5 HHonors points per dollar, which may put it over the top of 1.5% American Express gift card cash back.
  • Tiered redemptions. The US Bank Flexperks Travel Rewards card has tiered redemptions, which means you can only redeem your Flexpoints starting at 10,000 Flexpoints (for up to $150 in hotel reservations) and 20,000 Flexpoints (for up to $400 in airfare) when they cover an entire travel purchase. If the perfect ticket you're looking at costs more than the maximum value your current Flexpoint balance can be redeemed for, you're (usually) out of luck.
  • Transfer partners. This is a corollary of the above, but is just as important: 4 Ultimate Rewards points are worth more than 1.5% cash back not just because they can be redeemed for 4% cash back, but because they can be transferred to partner hotels and airlines where they're worth even more than a cent each.

Conclusion

This post absolutely isn't is an unqualified endorsement of manufacturing bonused spend instead of cash back — I love cash back, and my overall impression of the travel hacking community is that folks are too committed to hotel points and airline miles, acquiring unredeemably high balances at the expense of always-useful cash back.

But if, and only if, you're diligently redeeming your miles and points roughly as quickly as you earn them, then there are reasons to favor spending directly with bonused merchants rather than unbonused spending pushed through American Express gift cards, precisely because that bonused spending might get your balance within reach of a redemption you'd otherwise fall short of.