Barely halfway into 2022, we have already seen a dozen point transfer bonuses offered by transferable points programs (you can find the current point transfer bonuses as well as expired historical offerings on our Current Point Transfer Bonuses page). Any time there is a big point transfer bonus (which has felt like “more often than not” this year), we inevitably get questions about whether readers should “take advantage of” bonus X or Y while they have the opportunity. I’ve even gotten questions from friends who aren’t much into miles and points about whether a bonus is a good deal or whether they should transfer now to “get more points”. That led Greg and then me to think about the cost of speculatively transferring points. In short, a transfer bonus simply isn’t a good deal to me unless I plan to use the points right away. If my plan is “someday”, I can generate points more cheaply over time.
The value of a Membership Rewards point and cost of redemptions
For the purposes of this post, I’ll consider Amex Membership Rewards point transfer bonuses, though similar calculations could be done for other currencies.
Our Reasonable Redemption Value for Membership Rewards points is 1.55c per point. In other words, we think it is reasonable to expect to get that much value or more from each point (typically by transferring to airline programs) without a lot of effort to cherry-pick best uses.
However, points can’t be easily traded for cash at that rate, so some of us set a different floor for the cash value of a Membership Rewards point. Those who have the Schwab Platinum card can redeem points for deposits in a Schwab brokerage account at a value of 1.1c per point. Therefore, although points can be worth far more when leveraged in the right situation, 1.1c is the floor value I often use for Amex points.
The ability to trade points for cash at a rate of 1.1c per point means that I also view redemptions through in terms of what they cost me at 1.1c per point. That’s because if I redeem 100,000 points for an award ticket, I knew that I could have alternatively had $1,100 in my Schwab account, which puts the cost of redemption in clear focus. That 100K award ticket truly cost me $1,100. While I love the “joy of free” as much as the next person when I make a great redemption, the cash money I am trading away hurts my heart more and more when I consider the purchasing power that the points represent. I’ve spent more time considering the cost of my redemptions over the past few years.
The cost of points through point transfer bonuses
Thinking about redemptions in terms of cost at a value of 1.1c per point can be extended to transfer bonuses. Since I could otherwise redeem points at a value of 1.1c per point, a point transferred to an airline or hotel program is essentially 1.1c spent. While you aren’t “buying” miles with cash from your bank account, you may as well be each time you transfer a point that could have been 1.1 pennies and make it an airline mile or two. The Schwab cash redemption helps put it into clear perspective that points transfers are point purchases even if indirectly.
So how much do point transfer bonuses from Amex cost? That of course varies by the amount of the transfer bonus:
Transfer bonus of 25%
- 1 Membership Rewards point = 1.25 miles
- If 1 point = 1.1c, then you’re paying 0.88c per mile (1.1 / 1.25 = 0.88)
Transfer bonus of 30%
- 1 Membership Rewards point = 1.3 mile
- If 1 point = 1.1c, then you’re paying 0.85c per mile (1.1 / 1.3 = 0.85c)
Transfer bonus of 40%
- 1 Membership Rewards point = 1.4 mile
- If 1 point = 1.1c, then you’re paying 0.79c per mile (1.1 / 1.4 = 0.79c)
Hilton 30% bonus
- 1 Membership Rewards point = 2.6 Hilton points
- If 1 point = 1.1c, then you’re paying 0.42c per Hilton point (1.1 / 2.6 = 0.42c)
Hilton 40% bonus
- 1 point = 2.8 Hilton points
- If 1 point = 1.1c, then you’re paying 0.39c per Hilton point (or 0.42c at a 30% xfer bonus)
The above rates can certainly be entirely reasonable rates at which to purchase airline miles when you have a specific near-term use in mind.
However, would you speculatively buy miles at the rates above? While you can certainly use the miles to greater value than the cash cost in many cases, I would generally hesitate to tie up actual cash dollars in airline miles unless getting a really fantastically cheap rate on the miles.
While the rates above are certainly pretty good, I’m not a speculative buyer of airline miles at those rates for a couple of reason. First, by keeping my points flexible (transferable), I have a lot more freedom to cherry pick the best redemption value when I’m actually ready to book something (I don’t want to give up that power when I’m not ready to book something). Second, I consider my ability to generate airline-specific miles and I hesitate to speculatively buy them at the above rates when I could take my time speculatively generating them for less cost.
What I mean to say there is that if I have an imminent booking to make and a transfer bonus lines up with that booking, I’m happy to stretch the value of my points as far as possible. However, if I don’t have an imminent booking to make, then I have time to generate the miles I “might” need “someday” more slowly and cheaply than those rates above.
Cost of manufacturing points
While Amex specifically has language calling out and frowning upon manufactured spending techniques and has clawed back welcome bonus or other short-term spending bonus points earned through those techniques, I nonetheless find manufactured spending techniques in general to provide a good baseline comparison point for the cost of generating miles and points. Many Amex transfer partners also transfer with other points programs or there may be airline-specific cards available that enable one to generate miles even if at only 1 mile per dollar spent.
It therefore makes sense to look at a couple of quick comparison points regarding manufactured spending and the cost of generating miles.
For example, let’s imagine that you live near a Simon Mall (n.b. Keep in mind that Amex cards will earn zero points for purchases of gift cards at Simon Malls). What is your cost per mile if you used a card that earned just 1 airline-specific mile per dollar spent (I am intentionally choosing a very low return on unbonused spend)? A Simon Visa Gift Card can be loaded with up to $1,000 for a fee of $3.95 (or maybe less when on sale online). Let’s imagine you have a liquidation method available that would cost another $1 (YMMV for sure as some will have no options and others will have cheaper options). If you’re able to MS, your cost for 1,004 airline miles (earnings for your $1,003.95 purchase of the Visa gift card + activation fee) is $4.95. THat comes out to a cost of just under 0.5c per mile.
If you don’t live near a Simon Mall and a local grocery store is your best option, you’ll be looking at buying a $500 card with a $5.95 activation fee. Assuming the same $1 liquidation cost, you’re at $6.95 for 506 points (at 1x) or a relatively high cost of 1.37c per mile.
Assuming you have a credit card that earns 3x at a grocery store, the cost becomes much more reasonable. The same $6.95 in cost to generate 1,518 miles ($506 x 3) is 0.46c per mile.
Of course, if you catch those fee-free Visa gift card and Mastercard gift card sales at office supply stores or 4x fuel point promos at the grocery store, your cost per mile can be significantly lower than the numbers above.
Those are hardly the only options for manufactured spending. See our guide to Best options for buying Visa and Mastercard gift cards or our Manufactured Spending Complete Guide for more detail. My point is that if I’m not in a hurry to have points that I need for a specific near-term use, I am more interested in generating points at a lower cost than what I’m effectively paying for points during a point transfer bonus.
The manufactured spending numbers above represent what it would cost me to slowly generate my pile of “someday” miles. I am much more likely to continuously chip away at building a stash at those rates than I am to speculatively transfer now just because “25% more points is a good deal”. It isn’t a deal unless you have a near-term plan to use the points.
Of course, the above calculations completely ignore the time investment in manufactured spending and the various risks associated that may make it a completely unappealing opportunity for many readers, so those may not be your benchmark comparison points. Still, I think the fact that you have time to slowly build up your “maybe I’ll use these someday” points via category bonuses and new card welcome bonuses is more compelling than speculatively buying points without a specific near-term use in mind.
The bottom line for me is that a point transfer bonus can be huge when I know I’ll use the miles to great value right away. Otherwise, I’m better off focusing on slowly building my stash of points so I can strike when the iron is hot when my “someday” arrives.