Many people collect frequent flyer miles or hotel or bank points and brag about their balances, but how much are these currencies actually worth? Is your friend, boasting that he or she has a million miles, really that rich?

The short truth, in the simplest world, is that as a general rule of thumb, a mile is vaguely worth at least one cent (USD).

But in reality, they act much more like world currencies, whose relative value fluctuates over time.

So that’s the short answer, but here are some things to consider:

1. The value of our miles depends on how easy they are to redeem

This is a fairly easy thing to understand. If your miles are easy to redeem, perhaps on an airline that releases a lot of award space out of your city, and one that you can book most of their awards via their website, then they are worth more. If you have to call in, or there are close in booking fees (American, United) or fuel surcharges (many non-US-based airlines), those currencies are worth less. This is partly a factor of where you live too. If you live in a big connected city, like New York or Los Angeles, your miles are inherently worth more than someone with the same balance with the same airline in Topeka, KS – simply because you’re going to have an easier time using them.

Similarly, there are points that are issued by banks for spending on their cards, specifically American Express Membership Rewards, Chase Ultimate Rewards and Citi Thank You Points. These currencies are even more valuable because they are convertible. Not only do they have at least as much value as a Singapore Airlines Krisflyer Mile (since you can convert all three to that airline’s currency), the also all retain the value of Virgin Atlantic’s Flying Club’s best redemptions at the same time. So all three bank points are inherently worth more than either of those two airlines’ currencies, point for point.

2. The value of our miles depends on how easy they are to earn

The next most important factor, especially in the US — where there are a ton of very lucrative credit card sign-up bonuses — is that HOW you earn your miles is very important to how you value them.

For instance, if you apply for 2 American Airlines credit cards and meet the minimum spend, and fly on AA for a few trips and achieve status (which unlocks earning bonuses as you reach higher loyalty tiers), those miles become easier to earn and you’ll more quickly get to an account balance that has a lot of options for redemptions. More options means more freedom and utility, which increases the value of a currency. If I can earn and redeem miles for a flight easily, I get high utility and liquidity from those miles and I should value them higher. If I don’t fly very often, forget to add my frequent flyer number and don’t check or remember I have accounts with the airlines, I would view a dormant account much lower than an active one, simply because there are few pipelines going in feeding the balance.

3. The value of miles diminishes as you gain more

While it’s great to be able to have easy ways to earn and spend miles, there are gradually diminishing returns over time. Getting that 100,000th mile that puts you over edge for a business class ticket to Europe is worth WAY more than getting your 600,000th mile in the same currency, unless you’re likely to burn a lot of miles really quick.

At that point, you’re probably better at diversifying your mileage portfolio into other airline programs to protect you from devaluations (much like how a diversified stock portfolio insulates you from risk).

For many people, they have so many miles that earning cash back rebate points, valued at least a cent per point, is actually the most optimal strategy, since any more miles in their preferred currency will be less than the value they get from a straight cash rebate. This typically happens after you have enough miles for two first class tickets to anywhere in the world from your hometown. For most frequent flyer programs, this diminishing return point is usually reached around 500,000 or 600,000 miles.

4. As unstable currencies, it’s safe to assume their value will always go down

Miles are a lot of fun to accrue, and in many ways they act like currencies that you redeem for free flights. But they are far less reliable than most government currencies. So you should treat them as a toxic asset that you want to unload, not an investment vehicle. It’s not uncommon for an airline, much like an unstable government, to declare their currency worth half as much overnight.

This means that it’s always important to earn miles with a redemption in mind and not to earn them just to sit on them. So if you’re flying a route frequently for work, calculate your projected earning rate and compare it to the miles needed to redeem for a leisure trip to a far off destination. You may hit your target, or the airline might announce that their miles are worth less after a certain date in a the future (a devaluation) and you’ll be forced to book before the deadline (or readjust and pay a higher rate after the new system is in place).

Hopefully, these four main precepts will help you find the right way to value their miles and points. It’s a drastic simplification of how really savvy frequent flyers value their miles, and there are many discussions on Flyertalk on the proper value of a mile, but I thought it would be a good way to get the ball rolling and get people thinking about their miles.

If you have any advice on how to value miles or would like to contact me, email boromisa [at] gmail [dot] com or comment with more complex strategies below. I really want to foment discussion in the comments because this is a very complex topic (and one that often gets personal – so a broad range of perspectives are appreciated) – Thanks for reading!