Why points and miles are a bad long-term investment

It’s easy to think of points and miles like a variant of Monopoly money. It can be easy to throw them away and spend them casually.

However, for other people travel rewards can be easy to accumulate. After all, they are a form of currency, and we can get as stingy with our stash of points as we do with our hard-earned savings account balances.

However, there’s a very important distinction between travel rewards and cash: Unlike most real currencies, which can appreciate if invested wisely, your points and miles will almost certainly lose value over time.

In other words, points and miles are not a great long-term investment. The sooner you can spend them after earning them, the more value you will likely receive.

Let’s examine why carrying large balances of points and miles without a plan to use them is a bad strategy. This will help you avoid disappointment, heartbreak, and possible loss of net worth (rewards).

Related: Getting started with points, miles, and credit cards for travel

Points and miles devaluations

In recent years, we’ve seen many egregious devaluations in some of our favorite loyalty programs. The general mantra is that transferable rewards They are slightly less susceptible to devaluations than rewards from a frequent flyer or hotel program.

Travelers can usually redeem points like these for a flat rate, at a minimum.

But even transferable currencies suffer from time to time. For example:

Unfortunately, devaluations within airlines and loyalty programs are even more common, with changes including:

What happens to the cash?

Even if you accumulate and redeem points for a fixed value (as is the case when you have cards like the Capital One Venture Rewards Credit Carda popular option that allows you to offset paid trips at a rate of 1 cent per mile), your rewards still lose value over time.

He US Bureau of Labor Statistics He estimated that the inflation rate in the last 12 months increased by 3% in the main items.

What if you had opted for cash from the beginning? We like to think of our travel rewards as “free,” but you’re sacrificing money for miles every time you swipe a rewards card instead of a cash back card.

If you’re simply letting your hard-earned points and miles stay in your account, it might be more beneficial to opt for a cash back card so you can immediately see a return on your purchase.

How to redeem your points for maximum value

Redeem your points and miles regularly and prevent your balances from growing too high. If you find yourself with hundreds of thousands of points but no trips on the calendar, figure out when your next vacation will be and start planning.

If you find yourself in the enviable position of earning more points than you can spend, consider sharing your wealth with friends or family while they still maintain their current value.

You might even consider switching to a cash back credit card. You can end up with too many points and miles if you can’t spend them quickly enough. If you know you can top up your loyalty accounts quickly, earning cash in the meantime is a viable option.

The other major form of protection involves diversification. Currencies that transfer to multiple airline and hotel programs are not immune to devaluation, but they still offer many more redemption options if one airline or hotel program undergoes a drastic change.

So if you don’t already have a card that earns transferable pointsNow is the perfect time to consider one.

Related: Airline Credit Cards vs. Travel Credit Cards: Which Are Better?

In a nutshell

Points and miles can generate substantial returns today and relatively average returns tomorrow. Simply put, this coin is not suitable for investment as you are at the mercy of the program, which can and will occasionally increase prices without prior notice.

So, follow the “earn and burn” philosophy and get value from your miles before they depreciate. If you haven’t already, review the points you currently have and make sure you can use them before the next wave of inevitable devaluations hits.