rewrite this title How to Calculate Award Redemption Value – NerdWallet

Imagine you’re booking a pair of award flights: One costs 10,000 miles, and the other costs 25,000 miles. Which one is the better deal?

The cheaper flight seems like the obvious answer at first glance, but it’s really a trick question. The award prices alone aren’t enough to tell you which flight is the better deal, or whether either flight is a good deal to begin with. To determine that, you need to calculate the return you get from booking with miles, also known as the award redemption value.

To calculate award redemption value, you’ll generally need three pieces of information: the award price (in points or miles), the cash price of the same itinerary (in dollars), and the sum of any added costs that result from booking an award (also in dollars). You can then calculate redemption value for a given award in three steps:

The result is the cents per point or mile you get from booking an award, and will usually be a number roughly between zero and five. In some cases the redemption value may be less than zero or greater than five, but double check your work if you get a number far outside that range. For the mathematically inclined, here’s the same process in equation form:

Redemption value = ((cash price in dollars – taxes and fees in dollars)/price in points or miles) x 100

As an example, this three-night stay with flexible cancellation at The Graduate by Hilton in Ann Arbor, Michigan, costs $1,059.43:

There are no added costs in this example, so to calculate the redemption value, multiply the cash price by 100 to get a total of 105,943 cents. Dividing that number by the award price of 237,000 points yields an award redemption value of approximately 0.45 cent per point.

To calculate the redemption value in this example, subtract the added cost of award taxes and fees ($49.60) from the cash price ($193) to get $143.40, which represents the net savings you get from booking an award. Multiplying that number by 100 and then dividing by the award price (9,700 points) yields a redemption value of approximately 1.48 cents per point.

Skipping the first step of the calculation can distort the value of award redemptions by making them seem better than they really are. If you ignore the taxes and fees in this example, you end up with a redemption value of 1.99 cents per point.

You can similarly calculate the value of mixed points and cash awards by treating the cash portion like an added cost in the equation above. For example, this one-night stay at the Grand Hyatt Scottsdale in Arizona has a cash rate of $913 (excluding taxes and fees).

To calculate the award redemption value in this case, subtract the cash portion of the Points + Cash award ($491) from the cash price ($913) to get $422, which again represents your net savings from booking the award. Multiplying that number by 100 and dividing by the award price (14,500 points) yields a redemption value of approximately 2.91 cents per point.

Booking award travel often means you won’t earn points, miles or elite credits that you would normally earn when paying cash. That diminishes the value of booking awards an added cost. To do that, you’ll have to assess the value of those rewards.

For example, a Choice fare on this Southwest Airlines flight from Nashville to Phoenix costs $191 and earns 978 points.

You could instead book the same fare for 15,000 Rapid Rewards points and $5.60 in fees.

Ignoring rewards earned on the cash fare yields a redemption value of 1.24 cents per point. However, booking with Rapid Rewards means you won’t earn the 978 points offered on the cash fare.

Finally, while award redemption value generally compares the cash and award prices of the same itinerary, it’s sometimes useful to compare rates between similar (but not identical) itineraries.

For example, if a hotel room costs either $200 or 20,000 points, then booking an award yields a redemption value of 1 cent per point. But if the hotel next door is just as nice and only costs $180 per night, then you’re arguably not getting $200 of value by booking an award. When booking options are comparable, use the cheaper one as the basis for calculating redemption value.

In comparison, the cash price for the same itinerary is $3,028:

Accounting for award taxes and fees, but excluding opportunity costs and other cost considerations, this award yields a redemption value of 3.99 cents per mile.

This is more than three times NerdWallet’s valuation of AAdvantage miles, indicating that this award is an excellent deal despite the relatively high surcharges.

Redemption value is also useful for comparing different award booking options. For example, this World of Hyatt stay could be booked as a Points + Cash award for 14,500 points and $392, as a Standard Room Free Night award for 29,000 points, or at a cash rate of $759.

Taking the time to do the math on redemption values like these can help you make the most of your points or miles and score the best deals on your travel bookings.