In the past, I’ve written about how to decide whether to pay cash or redeem miles for flights. In this post, I’d like to take a look at how to decide whether to pay cash or redeem points for hotel stays.
I often see people on the fence about whether they should pay cash or redeem points for hotel stays, especially as hotel loyalty programs increasingly move closer to being revenue based. While the math is sometimes straightforward, other times it isn’t. So let’s discuss some of the things that you should consider.
In this post:
Redeeming points vs. paying cash for a hotel stay
Admittedly in some cases the decision of whether to pay cash or redeem points for a hotel stay is obvious.
Of course you should redeem 30,000-40,000 World of Hyatt points for a night at Alila Ventana Big Sur, if the stay would otherwise cost $2,000+ per night. Other times the math isn’t so straightforward. For example, should you redeem 80,000 Hilton Honors points for a night at the Waldorf Astoria Bangkok, if the rate would be $400 per night?
Let’s go over some of the things that you should consider when trying to decide. Before we do, let me make two important points:
- It’s totally fine if you just want to use points to pay for luxury travel, and you prefer not to pay cash, even if it’s not an amazing value; after all, acquisition costs for points are often quite low
- Don’t forget to also compare the cost of chain hotels to independent hotels, which might offer a better experience at a lower cost
How much would a hotel stay cost total?
The first thing to consider is the total amount a hotel stay would cost you if paying cash. This might sound obvious, but there are a few things to consider:
- Look at the taxes, fees, and service charges, as these are generally charged if paying cash, but not if redeeming points; some places have taxes & service charges approaching 30%, so in those situations, that could greatly change the math
- Consider any resort fees or destination fees being charged by hotels; some hotel loyalty programs (including Hilton Honors and World of Hyatt) don’t charge these when redeeming points
For example, let’s use a redemption at the Riviera Maya EDITION in Mexico for one night, where the cost is 106,000 Bonvoy points.
The cash rate is $812, so you’re getting “just” ~0.77 cents of value per point.
However, if you then look at the total charges, you’ll see that after taxes and service charges, the stay would cost $1,114 if paying cash. You’re now getting ~1.05 cents of value per point, which is much better.
How much do you value points?
I’ve shared my valuations of the major hotel points currencies. I absolutely don’t claim my valuations are correct, but I think everyone should consider how much they value points based on their own situation.
If your answer is “I acquired points for next to nothing, and that’s also what I value them at,” that’s totally fine. At a minimum, I know it’s useful for people to at least hear someone’s valuation as a starting point for how to decide whether to pay cash or redeem points.
How many points are you forgoing if you redeem?
Calculating how much value you’d get from your points with a hotel stay isn’t just as simple as dividing the revenue cost and the points cost. When you redeem points, you also have to consider the points that you’re forgoing by redeeming points rather than paying cash.
For example, as a Marriott Ambassador member with the Marriott Bonvoy Brilliant® American Express® Card (review), I earn 23.5x Bonvoy points per dollar spent with Marriott:
- I earn 10x Bonvoy base points per dollar spent with Marriott
- As an Ambassador member I earn a 75% points bonus, which is a further 7.5x Bonvoy points per dollar spent
- For paying with the Bonvoy Brilliant Card, I earn a further 6x Bonvoy points per dollar spent
I value Bonvoy points at ~0.7 cents each, so to me a return of 23.5x points per dollar is equivalent to a ~16.5% return. This all assumes that there aren’t further bonus points opportunities, as the major global hotel groups sometimes have further promotions.
Using the same EDITION example above, if I were to pay cash I’d earn a total of ~21,000 Bonvoy points (23.5x points on the $812, plus 6x points on the $302 in taxes & service charges), which I value at ~$147. In other words, I’d consider that hotel stay to really cost me $967 rather than $1,114.
What are you giving up by redeeming points?
Nowadays most hotel groups are good about honoring elite benefits and awarding elite nights for award stays, so there’s not usually going to be a huge difference on that front when it comes to paying cash vs. redeeming points.
If you’re staying at a high-end hotel, another consideration is whether your stay would qualify for a program that offers additional perks on paid stays at the flexible rate. For example, this could include everything from Amex Fine Hotels + Resorts®, to Hilton for Luxury, to Hyatt Privé, to Marriott STARS & Luminous, to Virtuoso.
Let’s use the same EDITION example above. The Marriott STARS rate would be $829 per night (before taxes and fees), and for booking that you’d receive a $200 hotel credit once per stay, daily complimentary breakfast (which Marriott Platinum members and above don’t otherwise receive at EDITION), a room upgrade, and more.
Everyone will value those perks differently, but those could add quite a bit of value, and could make paying cash the better value.
What are you giving up by paying cash?
While there are some advantages to paying with cash, there are also situations where there are further benefits when redeeming points.
For example, World of Hyatt Globalist members receive free parking on award stays, but not when paying cash (this also applies to Guest of Honor bookings).
Beyond that, loyalty programs like Hilton Honors and Marriott Bonvoy offer a fifth night free on award redemptions, while that’s not generally offered when paying cash. So you should also factor that math into the overall equation when deciding what represents a better value.
Bottom line
There’s no absolute right or wrong answer as to whether paying cash or redeeming points is the best value for a given hotel stay. In general, I recommend comparing the all-in cost when paying cash (including taxes & service charges) to the points cost, then deciding how much you value points, and then subtracting the points you’d be forgoing if you redeemed points.
There are some other potential considerations, like if you’re staying at a luxury hotel, where a program could score you extra perks without it costing you extra, when that’s not possible for those redeeming points.
What’s your approach to deciding whether to redeem points or pay cash for a hotel stay?
@Ben, if in your example the points rate is 106,000 and you would have earned 21,000 points by paying cash, why not just treat it as a 127,000 point redemption when figuring out basic value per point, instead of converting 21,000 points to cash equivalent? Especially since with hotel redeemed points and earned points come from/to the same program. I can see how the calculation can get trickier with airlines, when you can redeem points...
@Ben, if in your example the points rate is 106,000 and you would have earned 21,000 points by paying cash, why not just treat it as a 127,000 point redemption when figuring out basic value per point, instead of converting 21,000 points to cash equivalent? Especially since with hotel redeemed points and earned points come from/to the same program. I can see how the calculation can get trickier with airlines, when you can redeem points from one program while a cash ticket can earn points in a different program.
Milaidhoo Maldives gives free seaplane transfer (otherwise $1000pp + taxes) when paying with points. At 150k per night (and 5th night free), it was already a no-brainer for us, but this made the slam dunk
That’s a good point. Similarly, if HR Waikiki is $250-300 per night and valet parking ($80 per night) is free on award stays, that’s something that can move the needle.
This analysis is all based on the assumption that the customer's valuation of the stay coincides with the hotel's pricing. It's naive to accept that the 'total cost of the hotel stay' is what's being displayed on the website of the chain; the logical first step is to check which hotels are available in/around a destination and which of them are suitable for the type of stay (presumably most people won't have the same needs/expectations...
This analysis is all based on the assumption that the customer's valuation of the stay coincides with the hotel's pricing. It's naive to accept that the 'total cost of the hotel stay' is what's being displayed on the website of the chain; the logical first step is to check which hotels are available in/around a destination and which of them are suitable for the type of stay (presumably most people won't have the same needs/expectations when grabbing a room next to the airport for 9 hours as when they're arranging a month's stay for their honeymoon). The next step is to check pricing for the hotels in question using something like Trivago which compares what's available through various channels. It's not uncommon for Agoda etc to offer rooms for 25-30% less than the 'official' website.
Only after those steps have been taken can one start to assess the value of using points for a specific stay.
Of course, those of us who prioritise ALL and GHA Discovery have less work to do as the value of each point is totally obvious.
My strategy for using Bonvoy points is to not redeem them at hotels in the US where the standard of service is hit and miss and redemption rates are often overinflated. I save them for when I travel overseas.
For 120K points, I stayed at the Sheraton Grand Sukhumvit for 3 nights in Bangkok. My experience staying at that hotel blew away any experience staying in a US hotel. It was the first time...
My strategy for using Bonvoy points is to not redeem them at hotels in the US where the standard of service is hit and miss and redemption rates are often overinflated. I save them for when I travel overseas.
For 120K points, I stayed at the Sheraton Grand Sukhumvit for 3 nights in Bangkok. My experience staying at that hotel blew away any experience staying in a US hotel. It was the first time I had front desk staff greet me by my name whenever I walked past the check in area. A butler was a phone call away. Every element of my stay was first class.
I am heading down to Panama next spring. For example the Westin in Panama City is 22K points a night. I am leaning towards the Sortis (21K points/night) which is near Via Argentina and has great reviews.
Are most award stays $0 in taxes and fees because said taxes are a percentage of the room rate? (Obviously not referring to hotel-imposed resort/destination/junk fees)
Yes, as taxes are a government thing. And often the resort fee will be waived, presumably as it stands out like the proverbial.
It’s all about breakeven vs. maximizing value vs. opportunity cost. And, these days, since devaluations are the norm, often better to use ‘em than lose ‘em, so don’t hoard points. Still, it’s a case by case determination, even for those of us who sorta know what we’re doing. I feel for those who have no clue. Hilton free night certificate on a Garden Inn by the airport? Yikes.
While that's true, and I cringe when I hear those stories, it can still be a good use of points, even if it's not aspirational. We often look at an aspirational redemption on this blog, as expected, but some of those airport or smaller city hotels can have wide swings in pricing. A college town with the big game over a weekend, suddenly your average Hampton is going for $300+ per night. Those points aren't...
While that's true, and I cringe when I hear those stories, it can still be a good use of points, even if it's not aspirational. We often look at an aspirational redemption on this blog, as expected, but some of those airport or smaller city hotels can have wide swings in pricing. A college town with the big game over a weekend, suddenly your average Hampton is going for $300+ per night. Those points aren't earning any interest in staying in your Honors account, so if you are not one for aspirational travel, you can still easily make the math work on the Aspire card.
It kind of all depends.
Other times the math isn’t so straightforward. For example, should you redeem 80,000 Hilton Honors points for a night at the Waldorf Astoria Bangkok, if the rate would be $400 per night?
I would say this is a pretty straightforward yes even though it isn't an amazing value.
1. You can frequently buy Hilton points for .5 cents so really no opportunity cost
2. Hilton has no problem with biannual devals.
3. Almost impossible to get .5 cents booking a Hilton in the US
Nope nope nope nope. I only ever use points on business class air fares - 70,000 Aeroplan get you a $7000 one way J class in a wide body if you’re lucky. The only two points I collect are Aeroplan and the wonderfully flexible Amex offering.
Why limit yourself just to airline miles?
Beyond the points vs. cash analysis, a traveler needs to take into consideration the opportunity, or lack thereof, to otherwise use the points in the future at other properties. If you probably have no other opportunity to use brand x points in the foreseeable future, it may be wise to just use the points when you can rather than keep them in your bank them for some future hypothetical trip that may or may not...
Beyond the points vs. cash analysis, a traveler needs to take into consideration the opportunity, or lack thereof, to otherwise use the points in the future at other properties. If you probably have no other opportunity to use brand x points in the foreseeable future, it may be wise to just use the points when you can rather than keep them in your bank them for some future hypothetical trip that may or may not materialize. and the longer you wait, the more likely it is that the points will be devalued in the future.
All I know is that I’ve used this methodology for Hilton for years and NEVER found myself redeeming Hilton points. If that’s the case something about the methodology is wrong.
In the meanwhile I’ve redeemed plenty of Hyatt points, some Marriott points (but too rare, shame on Marriott), and not enough IHG points as to make the program worthwhile.
I agree as far as Hilton in the USA but Hilton's in Europe usually makes for much better redemptions. Especially if you stay 5 nights. Marriot makes sense lots of times in the USA but you also get better value abroad.