Reader Brian asks the following question on the “Ask Lucky” page of the blog:
How do you crunch the numbers to decide when to use Cash & Points versus paying at an SPG property? For example, the W Hong Kong is $330/night, or 8,000 points + $150. Trying to figure out how to make the best choice.
It’s a fantastic question I get asked all the time, though I don’t think I’ve ever thoroughly covered it, so I figured I’d do so now.
For those of you not familiar with Cash & Points, it’s one of the best uses of Starwood points whereby you can pay part cash and part points for a hotel stay. The award chart looks as follows:
By just about anyone’s valuation of Starpoints, Cash & Points is a better value than an outright points redemption. The “catch” is that Cash & Points is capacity controlled, while outright award redemptions aren’t (as long as a standard award is available).
There are three things to consider when redeeming Cash & Points:
- What you value SPG points at
- The value of the points you’re giving up by not booking a revenue stay
- The taxes/service charge at hotel
What you value SPG points at
I value SPG points at 2.5 cents each. Everyone’s valuation will be different, but I’m using that as the basis of my analysis. If you value them more or less, adjust the math accordingly.
The one thing I always note with my valuation is that for me the value of a point is based on what I’d otherwise be willing to spend for the product, and not the cash value. For example, I just redeemed 51,000 Singapore Airlines KrisFlyer miles for Singapore Airlines first class from Singapore to Tokyo Narita, which would have cost $3,500 had I paid cash. While I got a great value for my points, I didn’t think I got seven cents per value out of the ticket, as the math might suggest. So the analysis assumes the alternative would be paying for the hotel, and that it’s something you’d be willing to do.
So doing the math for the W Hong Kong example Brian gave, you can either pay $330 cash, or “pay” $350 by using Cash & Points ($150 cash, and $200 worth of points).
The value of the points you’re giving up by not booking a revenue stay
While award stays also now qualify towards elite qualification, only revenue stays accrue points. As a base SPG member you earn two points per dollar, while as a Gold/Platinum member you earn three points per dollar. So valuing those at 2.5 cents each, you’re looking at a 5% return as a base member or 7.5% return as a Gold/Platinum member for booking a revenue stay (not factoring in any promotions). So adding to the above math, the cost of a revenue stay would be reduced to $313.50 for a base member or $305.25 as an elite member if you’re paying, both of which are better values than the $350 you’d “pay” using Cash & Points.
The taxes/service charge at hotel
This is the one thing a lot of people overlook. Many hotels have taxes and service charges that add up to as much as 20%, and you only pay that on the portion of the room for which you’re paying cash. In the case of the W Hong Kong, there’s a 10% service charge.
That means in the case of a Cash & Points stay you’d pay an additional $15 (10% of $150), while for a revenue stay you’d pay an additional $33 (10% of $330).
Summing up the math
So once we crunch all the numbers, a revenue stay is costing you $338.25 ($305.25 plus $33) as an elite member or $346.50 ($313.50 plus $33) as a non-elite member, while a Cash & Points stay is costing you $365 ($350 plus $15).
The above example isn’t incredibly compelling either way, as there are other minor things to consider, like whether SPG is running a promotion or which of your accounts (bank account or SPG account) is looking bigger at the time you’re redeeming).
Hopefully that helps at least a little bit!