How to calculate the value of your credit card’s rewards points

It’s easy to get excited about a credit card that rewards you for your spending until you start trying to figure out the details. A rewards credit card can get you some great stuff just for using it, but first, you need to figure out how. With points ratios and tiers to further complicate matters, it’s no wonder some users end up not using their rewards at all.

Before you start comparing rewards credit cards to find the best one for your needs, you’ll need to know the basics of reward point currency. This is where you figure out how many dollars you need to spend to get points, and how many points you have to earn to get your reward. Once you have that down, you’re just a simple math equation away from determining how much value you actually get from the rewards.

Related: Compare rewards credit cards in Canada

How to calculate the value of rewards points

Since each rewards program is different, you’re going to have to do the calculations for each credit card you’re considering. To make it as comparable as possible, at least try and narrow your search down to the type of rewards program you want first. For example, if you’re looking for shopping rewards, choose a few shopping rewards credit cards to make a fair comparison. Then, follow these steps to see how much value you could get for your points:

1. Calculate. The easiest way to determine point currency is to calculate the points you will need to buy $1 worth of rewards. To do this, you will need to divide the number of points needed to redeem a reward by the retail price of that reward.
2. Compare. Let’s say you used a $50 gift card as your reward to compare and it costs 7,500 points, you would need 150 points for every dollar the reward is worth – 7,500 (point cost) / 50 (retail value of reward) = 150.
3. Result. After using this equation on comparable rewards with different credit cards, you can pick out those with the greatest value by looking for the ones with the lowest result. The lower the number of points, the better the value.
4. Earn rate. Now you will want to look at the earn rate. Using the same example, if the card has a 1:1 ratio on points to dollars, then you need to spend $150 in order to get $1 of rewards value. With a better earn rate ratio, such as 2:1, you would only be spending $75 in order to earn $1 back.

In order to make sure that your calculations are as accurate as possible, compare similar rewards across a variety of different credit cards. Gift cards and coupons are the easiest to compare, as their retail value is the same as their face value.

How to calculate the value of travel rewards

Using miles as the point of reference is the easiest way to calculate the value of a travel rewards credit card. You can also use the actual flight ticket price to do the comparison.

1. Price calculation. Divide the value of the reward in dollars by the points needed to earn it. The value of the reward would be the actual dollar cost of the flight. This will give you the ticket value in relation to your travel rewards points.
2. Mile calculation. If you prefer to compare rewards points for miles, you would simply divide the number of miles between two of your favourite destinations by the number of rewards needed for that flight. This will give you an idea of the point value for mile, helping you to make your comparisons across different credit cards.

See the below table to how you can use your points currency to calculate the value of your rewards.

Figuring cost per mile	Vancouver to Calgary
Miles	603
Cost for flight	$189
Rewards points needed for flight	8,000
Rewards points are worth	0.07 cents each

What other factors should I consider?

When trying to figure out the value of a credit card rewards program, there is more to think about than the points and how much they’re worth.

• Annual fee

Fees and interest rates can make a rewards card less appealing, as these costs can be high with these types of credit cards. The higher the annual fee, the lower the value of the rewards program.

For example, you have earned 14,000 travel rewards points and plan to use them to fly from Vancouver to Toronto. For the purpose of this explanation, let’s say that normally that flight costs $500. Now, you’re thinking “what a great deal!” until you factor in an annual fee of $240. That just about halves the value, which will be reduced even further once you factor in any interest you’re charged (if you carry a balance from month-to-month).

• Bonus features

Some rewards credit cards come with added features that just may make those fees and interest rates worth it. Complimentary travel insurance, concierge services and rental car discounts are just a few of the perks you may find with a rewards credit card. These services and features add value to the rewards card.

For example, if you were to travel to Thailand yearly, travel insurance could cost you around $100. If your card offers complimentary travel insurance coverage, then you can offset part, or all, of the annual fee with what you would normally pay for travel insurance.

How can I make the most of my points?

Treat your points like you would cash when it comes time to redeem them. If you’re rewarded with coupons or gift cards, shop for items that are on sale.

With travel rewards miles, go for the flights that are more expensive and generally never marked down. Keep in mind that you’ll have to factor in other costs, such as the higher taxes that are added on to an international flight. Taxes usually cannot be paid for with your points, and will reduce their value.

How to compare reward programs

When comparing the programs that accompany rewards credit cards, consider the following factors:

• Points currency. The real value of the rewards offered are determined by the value of the points and any fees. Taking the time to make the calculations will ensure that every dollar you spend is being stretched to its limit.
• Fees. Remember, the lower the fees and interest, the more value you get from the rewards. Few rewards cards have no fees, but you can choose a low cost rewards card if you wish.
• Perks. You also have the little extras that can go a long way in increasing a rewards program’s value. Look for things like complimentary insurance and hotel discounts if you want to maximize your rewards potential.
• Features. Some rewards cards also come with features that may be valuable to you outside of the rewards program. Balance transfer offers, for example, could save you thousands of dollars if the interest rate is significantly lower than what you’re paying now.

Related: Best credit cards in Canada

Bottom line

With just a few minutes of work and some minimal math calculations, you can figure out how valuable a credit cards rewards program is. Not only does this allow you to choose the best credit card for your needs, it also helps you understand how the points program will work and most importantly, how it’s going to work for you.

Frequently asked questions

• Are there any rewards cards that don't have an annual fee?

  Fees and high interest rates are used to help offset the cost of a rewards credit card, which makes it difficult to find a rewards credit card with no annual fee.

• Is there a limit on the number of points I can have?

  Some cards do have a points cap, which could decrease its value for you depending on how much you spend a year using a credit card. Keep in mind some points may also expire, so you’ll want to use them before they disappear.

• Can anyone apply for a rewards credit card?

  There are eligibility requirements for every credit card. While the criteria varies between cards, you will usually need to meet the following:

  • Age. You must be at least 18 years of age, or the age of majority in your province or territory.
  • Residency status. You will need to be a Canadian citizen or a permanent resident with a valid Canadian address. You can usually also apply if you’re a landed immigrant who is employed with a steady income.
  • Income. You will need to have a steady income. Some providers require that you meet a minimum income requirement.
  • Credit history. You must have good to excellent credit history to apply for most credit cards. If you’re struggling with no or low credit, you can rebuild your credit score with a secured credit card.

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