I went through a mental exercise today of whether or not I should redeem my UR points for cash back or transfer them to an airline program for travel. After running the numbers, and assuming I don't value a premium cabin, I actually came out (to my surprise) with the conclusion that the cash back was a better deal. What do you guys think? I published the full analysis at my blog here. Full text is also below: >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> One of the reasons I even write this blog is because of the inspiration I received, beginning in 2011, from reading various travel blogs. Over the past year or so I have accumulated a somewhat large cache of frequent flyer miles which I have detailed here. This weekend I began thinking in particular about my Ultimate Rewards points balance, and while swimming laps at the YMCA I had the following thought come into my head: Should I just redeem these points for cash back? Since I have 120,000 points this would equal out to about $1,200. But I then went to reconsider because I know how valuable these points can be for travel. I wanted to see exactly which side would be best by running the numbers. So I went through the following little exercise and made the following assumptions. A) I would really only want to travel with my wife B) I do not place any value on business class or first class seats C) I typically can only travel during the summer, Christmas season, or Spring Break time; since I am a teacher. This makes it difficult to redeem awards during “off peak” times. D) I value the miles at a conservative $.01 each. E) The flight I was looking at was Chicago (ORD) to Paris (CDG), I found this on ITA Matrix for $1186. Save UR points for travel redemption Ticket A on United 55000 Ticket B on United 55000 Opportunity Cost Ticket A 9304 Opportunity Cost Ticket B 9304 Total Cost In Miles 128608 Miles Value @.01 TOTAL COST 1286.08 Redeem UR Points for Cash Cost for Ticket A 1186 Cost for Ticket B 1186 Cash Back Credit -1200 Miles earned at .01 Credit -186.08 Miles earned on credit card at .0214 Credit -50.7608 Total Cost 935.1592 I think this spreadsheet makes a lot of sense, and as you can see the total cost is greater if I redeem my award miles for travel by transferring them to an airline partner. Why is this the case? Well first let’s look at the “Save UR points for travel redemption side”. Obviously first is the cost of the award in miles itself with two awards at 55,000 x2 for each ticket. If award miles do have a value (in this case I valued them at $.01), then they should show up on the cost side at the top, because in redeeming an award I am costing myself the opportunity to get 9304 miles for each traveler. This is what would have been credited to my account had I actually flown the flight on a paid fare. Then we have to just value the points in some fashion, and I have chosen a conservative $.01 per point. Doing it this way actually makes the case for redeeming as an award closer than it would otherwise, for if points are really valuable the opportunity cost of using the award points and not getting miles for travel would only increase. The cost then is $1286.00 Now let’s look at the other side of the ledger. The miles I have earned by flying then go down as credit (in this spreadsheet a negative number) on the “Redeem UR points for cash” side of things as I will earn those when I just go out and buy the fare. Also showing as a credit on this side of the ledger are the points that I have redeemed for cash back purposes, both the original 120,000 points plus the cash back I will get from booking the fare on my credit card (I have a .0214 multiplier here as the Chase Sapphire Preferred card gives 2% cash back on travel and 7% yearly dividend bring the total to 2.14%). The total cost of my trip is now $935. This of course ignores the fact that I could perhaps also earn interest on the cash in the form of a cash back award for some period of time, but I am leaving that out and just looking at this as a binary choice at a set moment in time. The lesson to draw from this, I think, is that credit card award programs may not be quite the deal we think when we are transferring them to airline partners. If we agree with the notion that miles do have some kind of value, we cannot ignore the fact that we may pass up earning valuable miles by traveling on an award ticket. Another lesson, I think, is that the best way to really get a deal on airline miles is by actually flying in the program and then earning miles the old fashioned way. The “best deal” would come from scrounging for flights that are good deals and earn a lot of miles, and then redeeming those earned miles for expensive flights. This of course explains the logic from the airline’s perspective in that it really does reward their customers who actually fly. This dynamic, of course, would change dramatically if one truly does value premium cabin travel like business or first class. This would tip the costs much more towards the “redeeming UR points for travel” side of the ledger. On the other hand, though, we must remember that each time we place a greater emphasis on the value of the miles themselves (conceivably because we can redeem them for expensive tickets and therefore they are worth $.03 or even $.05 a mile), then the opportunity cost of not earning miles on the distance traveled goes up as well. I fully realize I may not be saying anything revolutionary here, but nonetheless I thought this was an interesting intellectual exercise and the information may also be of value to many who approach travel with the same assumptions that I do.