What Are Bonus Miles on Credit Cards?

Bonus miles are a type of credit card reward designed to incentivize spending. While often associated with airlines, bonus miles can be redeemed for various travel expenses, and sometimes even for non-travel items. They allow cardholders to earn rewards for their everyday purchases.

How Bonus Miles Are Earned

Bonus miles can be accumulated through several avenues. A common method involves sign-up bonuses, where a significant number of miles are awarded after a new cardholder spends a predetermined amount within a specified timeframe. For example, an offer might require spending $3,000 within the first three months of account opening to receive a bonus.

Another way to earn miles is through category bonuses, which provide accelerated earning rates on purchases made in specific spending categories. These categories might include travel, dining, groceries, or gas, and can sometimes rotate quarterly, offering higher rewards for limited periods. For instance, a card might offer 5 miles per dollar spent on travel, compared to a base rate of 1 mile per dollar on all other eligible purchases.

Beyond specific categories, a base rate of miles is earned on most other eligible purchases made with the card. This general spending typically yields 1 mile per dollar spent. Additionally, some credit card programs offer referral bonuses, rewarding existing cardholders with miles when they successfully refer new applicants who are approved for a card.

Promotional offers also provide opportunities to earn extra miles through limited-time deals or partnerships. These can include increased earning rates for specific merchants or special bonuses for reaching certain spending milestones outside of the initial sign-up period.

How Bonus Miles Are Used

Bonus miles offer diverse redemption possibilities, with travel redemptions often providing the most value. Cardholders can typically use their miles to book flights and hotel stays directly through the credit card issuer’s travel portal, similar to an online travel agency. Alternatively, for certain cards, miles can be transferred to partner airline or hotel loyalty programs, potentially unlocking higher redemption values.

While travel is a primary focus, bonus miles can also be converted into cash back or applied as a statement credit to reduce an outstanding balance. However, this redemption option generally yields a lower value per mile compared to travel redemptions, often around 0.5 to 1 cent per mile. This means that using miles for cash back typically results in less purchasing power than using them for flights or hotel stays.

Gift cards and merchandise represent other redemption alternatives, although these options also tend to provide a lower value per mile. For example, a mile might be worth less than one cent when redeemed for a gift card. Some programs may also offer unique redemption opportunities, such as experiences or event tickets, which can vary widely in value depending on the specific offering.

Key Aspects of Bonus Mile Programs

One significant aspect is mile valuation, often expressed as “cents per mile” (CPM). This metric helps assess the worth of a mile, and its value can fluctuate considerably based on the redemption method. For instance, redeeming miles for travel often yields a higher CPM than redeeming them for cash back or merchandise. While some programs may offer a fixed value, dynamic pricing for travel redemptions can mean the actual value received per mile varies.

Many travel credit cards feature transfer partners, allowing cardholders to move their accumulated miles to various airline or hotel loyalty programs. This flexibility can be advantageous, as transferring miles to a partner program might enable redemptions that offer a significantly higher value. However, once miles are transferred, they are subject to the partner program’s rules and cannot typically be transferred back.

Annual fees are another consideration, as many credit cards offering substantial bonus mile programs carry a yearly charge. These fees can range from under $100 to several hundred dollars, and it is important to weigh the cost against the benefits and miles earned to determine the net value. Additionally, bonus miles and points can have expiration policies. While rewards earned directly through general credit card programs often do not expire as long as the account remains open and in good standing, miles transferred to airline or hotel loyalty programs may expire after a period of inactivity, typically 12 to 36 months.

Applying for credit cards, particularly those with large sign-up bonuses, can impact one’s credit score. Each application typically results in a “hard inquiry” on a credit report, which can temporarily lower a score by a few points. Multiple hard inquiries in a short timeframe can have a greater negative effect, so it is advisable to space out applications. Finally, bonus mile programs generally fall into two categories: proprietary programs offered by major banks (e.g., those allowing transfers to multiple partners) and co-branded cards associated with specific airlines or hotels, which typically earn miles directly with that brand.