Why You Shouldn't Hold Onto Your Travel Points For Too Long
We're told to save in almost every financial situation. Save for retirement, invest and compound interest in a Roth IRA, don't hammer the piggy bank. When it comes to travel rewards, whether it's airline miles or hotel loyalty points, it's understandable that this conditioning bleeds over. However, travel points are different than stocks or the variable price of gold. Travel points will always — repeat, always — devalue over time. They are not long-term stock holds.
While accumulating points until they can be spent in bulk is wise, as large purchases with travel awards typically manifest the most value, there's a needle to be threaded. To be clear, we're absolutely pro-travel awards, and savvy travelers really benefit from savvy point-collecting. And why not? The travel industry is a competitive industry, so airlines and hotels jostle among themselves to attract loyal customers. That said, you should be aware of the consequence of companies constantly courting loyalty — inflation. Collecting points can definitely be worthwhile, but hoarding points is unwise, and here's why.
Travel points devalue due to inflation
Due to the dynamic model of travel rewards and the evidence of past devaluations, you'll preserve the most value of your frequent flyer miles and hotel loyalty points with an "earn and burn" approach, a term coined by The Points Guy. While we're not economists, we'll first address the idea of inflation in the landscape of travel rewards.
As mentioned, airlines and hotels continually strive to outbid one another, in the model of their respective programs, in an effort to lure frequent travelers. When it comes to jackpots, frequent travelers — whether due to business or pleasure — are the white whales within the travel industry. In this continually reward-giving brinkmanship, these companies promise more miles, hotel loyalty points, and perks. This looks great on paper (or through gentle reminders before deboarding a plane), but it's not so great when following the practical rules of math and economics.
The more miles and travel rewards flood the market, the less value they hold due to inflation. And when you add travel-related credit cards with huge welcome bonuses to the mix, the banana boat really starts to rock.
Moving goal posts are pretty common
Along with inflation, here's the second reason you shouldn't hold on to travel points too long. In the same way that these companies compete to offer more points and miles to attract customers, they also compete on the way down in devaluing these loyalty points later. We won't call the whole thing a bait and switch, but we're happy to infer it.
The Points Guy provided two examples of this rapid devaluation. In 2016, American Airlines changed its rewards chart dramatically. Routes that may have cost 50,000 AAdvantage points suddenly cost 100,000 points. Approximations aside, you get the drift. More importantly, in 2015, Delta did away with its awards chart altogether, changing from solid price tags to dynamic pricing, which is now the industry standard. Since this dynamic pricing model affects travel point currencies, you're back to the aforementioned reason not to hoard travel points — inflation. The goalposts usually don't move so dramatically, but they do subtly move further away pretty consistently.
While this all may sound confusing, which it can be, let's address the best reason for going ahead and spending your miles or hotel loyalty points. Go on the trip! Comp the vacation, or lower its cost, and enjoy yourself. Trust us, there will be more points available when you get back.