Before you dive in and start to earn your own miles to make award redemptions, it’s important to understand the different kinds of miles and points and how they can be used for different travel styles. In part three of this guide, you will learn about the three different types of miles and points, as well as the pros and cons associated with each. By the end of this section, you should have a better idea of which type you should be focusing on to suit your personal travel goals.
1. Fixed rate returns
The simplest form of miles and points are currencies that offer a fixed rate return. These are commonly offered by banks, which allow you to redeem a certain amount of points in exchange for a set monetary reward.
The benefit of a fixed rate return currency is how simple it is. You can easily calculate the rate of return based on how many points you are spending.
Another benefit of this type of currency is that there are usually no restrictions on when you can redeem the reward, and no need to deal with blackout dates.
On the other hand, fixed rate return currencies are usually less rewarding. Since all your redemptions are “locked” at a fixed rate, it also means that when ticket prices rise during peak travel season, you will need to spend more points to redeem the same ticket.
Examples of fixed rate return currencies are TD Rewards and WestJet Rewards.
2. Flexible rate returns
These are miles and points that have different reward categories or tiers that you can redeem using a set amount of miles. In these types of currencies, 1 point doesn’t necessarily equate to a certain dollar value – it all depends on how you use it.
*For the sake of this example, we’ll use a simplified ticket price, without considering the extra fees that vary in each program, such as booking fees, taxes, and fuel surcharges.
To illustrate this, let’s say you have 25,000 points in a flexible rate loyalty program. In this program, 25,000 points can redeem a round trip ticket within North America. The actual monetary cost of a round trip in North America from point A to point B obviously depends on what point A and B are, as well as the time of travel. As an example, a round trip fare from Vancouver to Los Angeles can be $300, while a round trip fare from Vancouver to Toronto can be $600.
If you used 25,000 points to redeem the $300 flight, your rate of return would be 1.2%.
If you used 25,000 points to redeem the $600 flight, your rate of return would be 2.4%.
Because the rate of return differs depending on what flight you book, we call this a flexible rate return. The trick is to maximize the rate of return for the flight you are booking, so as to maximize the value of your points.
In our example above, our Vancouver – Toronto segment gave us a 2.4% return on our points, which isn’t the best value, but some redemptions (such as for business class tickets) can yield a much higher rate of return.
An example of a flexible rate return currency is Alaska Airlines, of which you can see a sample of their award redemption chart below. For now, don’t worry if you don’t understand how to read the award chart – it will become much clearer in a future post.
Another great thing about flexible rate currencies is that their redemption rate most often will stay the same throughout the year. This is particularly handy if you need to travel during peak season or last minute booking. While the cash value of the ticket may have doubled, the miles needed for your redemption would be identical.
The combination of these two factors make flexible rate return currencies really powerful. By maximizing the point per dollar ratio and rate of return, your points can be worth so much more just by being strategic on what flight routes you redeem and when you travel.
Transferable currencies are sort of like a hybrid points system, which can be used as a fixed rate currency, or transferred to a flexible rate currency.
For example, you could apply the points as statement credit at a fixed rate, or you can transfer it to a separate frequent flyer program, which you can use like a flexible rate currency.
Examples of this type of currency:
- Marriott Rewards
- RBC Rewards
- American Express Membership Rewards
Overall, transferable currencies are very valuable, rewarding and offer a lot of flexibility. If you really wanted to, you could use points to pay down your bill, or for more valuable redemptions, you can transfer it to various different programs to redeem hotels or flights.
By now, you should have a better idea of what each type of miles and points can do for you, and how you can use them in different situations. Ultimately, it is up to you which type of currency you want to be investing in. What do you value the most? Earning predictable, cashback rewards after spending a certain amount of money? Using your points to redeem airfare without blackout dates? Or do you have a lot of flexibility and want to maximize the value that you can get out of your points with premium class travel? Depending on what your priorities are, your currency of choice may change.
Going forward, our guides will focus heavily on flexible rate currencies and transferable currencies, and not so much on fixed rate currencies. This is where we believe the most valuable and lucrative rewards can be found.
Our next post will be an exciting one, as we’ll talk in more detail about specific flexible rate & transferable currencies, and finally get you started on earning!