Should I Redeem Miles Right Away to Avoid Devaluation?
TPG reader Tim sent me a message on Facebook to ask about award redemption strategies:
“I currently have a stockpile of AAdvantage miles, but it seems like they're continuously losing value. Is it okay to hold onto them, or should I try to use them as soon as possible?”
I've been loyal to American Airlines for years now, and while I still think there's a lot to love about the AAdvantage program, it seems to be heading in the wrong direction. Already in 2016, we've seen a major devaluation in the award chart, a switch to revenue-based mileage and reduced earning rates for partner flights in economy. Unfortunately, American isn't the only one running in this race to the bottom, and with so many loyalty programs making negative changes, it's a good idea to shorten your horizon for award redemption.
Travel rewards make a bad long-term investment, so it's best to avoid stockpiling them. That said, award travelers have diverse needs, so I don't think there's a specific number of points or miles that you could universally classify as excessive. A million miles is a lot for someone who just flies in domestic economy a few times a year, but might not be enough for someone booking a first-class international award every month. Instead of looking at the quantity of rewards in your account, consider how they fit into your upcoming travel plans.
I think a good rule of thumb is to keep enough on hand to cover you for the next year. You can adjust that timeline depending on how quickly you earn rewards through paid travel and spending — for example, you don't need as much in your account if it's easy to replenish. You might also add a little cushion in case of emergencies, but anything beyond that is probably overkill and leaves you more vulnerable to devaluations.
On the flip side, you don't want to find yourself scrambling to earn more rewards because you don't have what you need. Building a one-year reserve will give you more flexibility to take advantage of award sales and other opportunities, and it's typically easier to find availability further in advance. Basically, you have to pace yourself; it's good to have enough points and miles that you have options, but not so many that you don't know what to do with them.
If you have more than you need for the next year, don't go burning your rewards just to get rid of them. Devaluations are inevitable and sometimes unpredictable, but you'll usually get at least a few months of warning before large-scale program changes take effect. There's no rush to redeem unless another devaluation is imminent.
Finally, some points and miles are more susceptible to devaluation than others. I'm fairly comfortable stockpiling in programs like Chase Ultimate Rewards or Amex Membership Rewards because transferable points are more likely to retain value. Those programs may implement their own negative changes from time to time, but overall they're less risky than individual airline and hotel programs.