Frequent-flyer miles. If you’ve ever taken air travel, more than likely you’ve been offered to signed up for a frequent-flyer rewards program. Although these points are designed to help customers save money or redeem rewards, unless you fly often, you may not see a point in signing up.
In many regards, a point or milage program is simply a currency alternative and unfortunately has the downside of losing value. Some disappear altogether if they aren’t used. Because of this, many expects advocate for using your points as soon as possible to minimize the rate of depreciation. In order to get the most out of your points, it’s important to understand ROI, inflation and liquidity.
Let’s take the following scenario into consideration. You go to a smoothie shop and you order a $5 drink. At checkout, the cashier offers you a buy-5-get-1-free stamp card. If it’s free, you may take the card, stuff it in the back of your wallet, and never use it again. Taking the cost of a smoothie into consideration, you’d have to spend $25 at the store for a $5 return. If you drink a smoothie 2-3 times a week, this is probably a decent deal and you’re more likely to use your loyalty card. However, let’s say you have to purchase a membership subscription to the store which would then allow you a discount on your 5th smoothie. You’d be less inclined to participate in the loyalty program as the return on your investment is neither simple, nor substantial.
In the same vein, price inflation regarding frequent-flyer points is relevant. It’s important to find the correlation between hikes in airfare and point value. Frequent-flyer points are often measure on distance, so even if airfare rises, points that retain value are still usable. Airlines hike prices more often than they update their rewards programs. If the points have a lower inflation rate than the price of a ticket, your rewards will hold up better than cash. According to Points Guy, some transportation points may actually increase in value over time.
As for liquidity, always consider how easy it is to cash in on your rewards points. The more difficult it is to make use of your accrued points, the more pointless it way seem to belong to a program.
Carefully consider any rewards program before enrolling and decide if holding onto points will benefit you in the long run.