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How to Protect Your Credit Card Rewards from Inflation
December 12, 2024
Inflation is impacting more than just the price of milk and gas – it’s quietly eroding the value of your credit card rewards. If you’ve been saving up points or cash back, you might be surprised to learn that those rewards won’t stretch as far as they used to. The good news? With a smart strategy, you can protect your hard-earned credit card rewards from inflation. In this guide, we’ll explore why rewards lose value over time and actionable steps to safeguard their worth. (Spoiler: a few simple moves can ensure your points and miles keep their power.)
Why Do Credit Card Rewards Lose Value? (The Inflation Problem)
Even though your rewards points aren’t dollars, they are still subject to economic forces. Here’s why they’re vulnerable:
- Points Inflation by Programs: Credit card issuers, airlines, and hotels can increase the points required for a given reward. If a flight cost 50,000 miles last year but 60,000 miles this year, your miles effectively lost value. This is often called “points and miles devaluation,” and it’s like inflation – you need more points to buy the same thing.
- Economic Inflation: General inflation means $1 today buys less than $1 did a few years ago. Many reward points are pegged to dollar values (for example, 1 point = $0.01 in value). As the purchasing power of a dollar drops, so does that of your points. In other words, if prices of travel or merchandise rise, you’ll spend more points for the same item.
- Opportunity Cost of Hoarding: Unlike cash in a bank, points don’t earn interest or grow. In fact, they often lose value over time because loyalty programs frequently adjust their policies. As one expert put it, points and miles are “not a great long-term investment”. They’re meant to be used, not stored indefinitely.
Real-world impact: A Wall Street Journal report found that in 2023 consumers held around $34 billion in credit card points, a 70% jump since 2019. But because of inflation and point devaluations, many discovered those stockpiled points wouldn’t go as far for booking trips. The lesson? Holding onto rewards too long can be costly.
5 Strategies to Protect Your Rewards from Inflation
Now that we know the problem, let’s get proactive. These strategies will help preserve (and even enhance) the value of your credit card rewards:
Use the “Earn and Burn” Approach
The #1 rule to avoid losing value is don’t hoard your points forever. Think of rewards like fresh produce – they’re best used sooner than later. Redeem your points and miles for meaningful rewards as you accumulate them. This way, you beat any future devaluation. For example, if you’ve been eyeing a free flight or a statement credit, consider booking it in the near term rather than waiting a year. By redeeming earlier, you ensure you get today’s value. Bonus: Enjoying your rewards sooner is more satisfying, too!
Focus on Stable-Value Rewards
Some rewards hold value better against inflation. Cash-back credit card rewards are a prime example. A 2% cash-back card gives you $0.02 per dollar spent – that value doesn’t change because it’s cash. Of course, cash is subject to inflation in the economy, but you can immediately invest or save that cash (in a high-yield savings account, for instance) to offset inflation. Similarly, some travel cards have points with fixed travel statement credit values (e.g. 1 point = 1¢ toward travel). These fixed-value points act as a hedge since the issuer will give you a set credit amount regardless of flight/hotel price changes.
Diversify Your Points Portfolio
“Diversification” isn’t just for investing in stocks – it applies to rewards too. Instead of putting all your spending into one airline’s mileage program, consider using cards that earn transferable points (like Chase Ultimate Rewards, Amex Membership Rewards, etc.). Why? Because you’ll have the flexibility to transfer those points to various airline or hotel partners when you’re ready to redeem. This gives you options to find the best value and avoid being stuck if one program devalues. For instance, if one airline suddenly inflates award prices, you can transfer your points to a different partner with a better deal. Flexibility = protection against any single program’s “inflation.”
Redeem for High-Value Rewards (Maximize Value)
Inflation hurts, but you can fight back by redeeming points where they’re worth more per point. This means seeking outsized redemption options:
- Airline Sweet Spots: Some flight awards offer great value (points “worth” 2¢ or more each). For example, if 25,000 miles get you a $600 flight, that’s $0.024 per mile – well above the typical 1¢ value. These redemptions counter inflation by squeezing more purchasing power out of your points.
- Hotel Point Deals: Similarly, use hotel points at properties where the cash price is high but points price is reasonable (e.g., a luxury hotel that costs 60,000 points vs $800 cash a night gives you ~1.3¢ per point value).
- Transfer Bonuses: Keep an eye out for promotions. Sometimes card programs offer bonus % when you transfer points to partners (e.g., a 20% bonus to transfer to an airline). Taking advantage of these can instantly boost your point’s value and offset past inflation.
By being choosy and strategic in how you spend points, you effectively “beat” the inflation within rewards programs.
Use Tools to Optimize Rewards (Don’t Miss Out)
Lastly, make sure you’re earning as many points (or cash back) as possible to outpace inflation. This is where technology can help. For example, Kudos – a free browser extension and app – automatically finds the best credit card to use for each purchase to maximize your rewards. Using the right card for the right purchase can dramatically increase your earnings. If groceries are 10% more expensive this year but you have a card that gives 5% back on groceries (and Kudos reminds you to use it), you’re recouping some of that extra cost. Similarly, Kudos helps you discover card-linked offers or better redemption options while you shop. By optimizing earning and redeeming with smart tools, you ensure no rewards are left on the table – crucial when every point’s value is slightly lower due to inflation.
The Power of Being Proactive
Protecting your rewards from inflation boils down to staying one step ahead. Don’t let points languish unused for years. Keep an eye on reward program news (so you aren’t caught off-guard by devaluations). Regularly cash out flexible rewards like cash back or convert points into bookings that lock in value. Think of your rewards as part of your financial plan: manage them actively, just as you would investments.
Upshot: By using the strategies above, you can make sure rising prices and point devaluations don’t erode the travel, cash back, or gift cards you’ve earned. In fact, you can even come out ahead of inflation by leveraging bonuses and smart redemptions.
FAQs: Protecting Rewards from Inflation
Do credit card points lose value over time?
Yes – almost all credit card points and miles lose value over the long run. Programs increase the points needed for rewards (devaluation), and general inflation means those points buy less. That’s why experts say to use them rather than save indefinitely.
Is cash back better than points during high inflation?
Cash back is more stable in value because $1 of cash back is still $1. You can invest or save it to offset inflation. Points can sometimes outpace inflation if used very strategically, but generally cash (or cash equivalents like statement credits) is the safer bet when prices are rising.
What’s the best way to keep my rewards’ value protected?
The best approach is to redeem regularly for high-value rewards. Don’t hoard points for years. Use tools like Kudos to maximize what you earn and ensure you’re getting the most out of each point. Also, stay flexible – have a plan B (alternate redemption or transfer option) in case a program changes its rewards chart.
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