There are different types of credit card rewards - but this is the best one

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Among people well versed in rewards credit cards, there's a bit of common knowledge: Not all rewards points are created equal.

That's because even though a ton of different cards offer "points" or "miles" for every dollar you spend, those points can be very different things, with very different values.

Each bank and frequent flyer program has its own rewards currency that can be used in different ways. That makes it complicated when it's time to choose a credit card. Two different cards could both offer double points on purchases, but those points could be good for very different things.

In some cases, points can only be used toward a statement credit applied toward travel purchases. They're great cards otherwise, but in terms of rewards, you can do better. That's because the best kinds of rewards points are ones that are transferable - meaning you can move them over to airline and hotel programs.

Let's unpack why transferable points are the most valuable rewards you can earn.

Keep in mind that we're focusing on the rewards and perks that make these credit cards great options, not things like interest rates and late fees, which will far outweigh the value of any points or miles. It's important to practice financial discipline when using credit cards by paying your balances in full each month, making payments on time, and only spending what you can afford to pay back.

What are transferable points?

With some credit cards, you can transfer the points you earn through your everyday spending to partners.

A few different banks and rewards programs offer transferable points, but arguably the two most robust are Chase Ultimate Rewards and American Express Membership Rewards. The other notable programs are Citi ThankYou Rewards and Capital One - the latter bank added airline transfer partners in late 2018.

For example, if you're using Chase cards that earn the bank's Ultimate Rewards points, you can transfer those points to any of nine airline frequent flyer programs and three hotel loyalty programs. The Ultimate Rewards program's airline partners include carriers in all three of the major airline alliances, which effectively means that you can book frequent flyer tickets - also known as "award flights" - on most airlines.

Transferable points can save you a ton on your flights

In many cases, it can be better (read: cheaper) to book flights through an airline's frequent flyer program instead of, say, exchanging points for cash back and using that money to buy plane tickets, or exchanging your points for a statement credit to "erase" travel purchases.

Cash prices for flights are extremely variable, changing all the time thanks to complicated airline pricing algorithms. When you exchange points for cash or as a statement credit, generally the best return you can get is 1 cent for each point applied toward the price of the ticket when you booked it.

Using transferable points to book cheap award flights

In many cases, award ticket pricing is different, with the disclaimer that each airline's system varies significantly. For this example, I'm going to focus on United Airlines - a partner of Chase's Ultimate Rewards program - and the way that its MileagePlus frequent flyer program works.

Regardless of what happens to the cash price of a United ticket, an award ticket will cost one of two possible amounts: a "saver" level price in miles, and a "standard" price.

Just note that United is getting rid of its award chart on November 15, 2019, at which point award flights will have dynamic pricing. That means that the award price will depend on demand - so if you want to travel at a popular time, you'll need to pay more miles. However, there will still be saver-level awards as well as more expensive award prices.

Let's say you wanted to travel round-trip from Chicago to Munich, Germany. That ticket could cost more than $1,200 depending on which month you travel.

If you exchanged your Chase Ultimate Rewards points for cash to purchase the ticket, or if you wanted to use fixed-value points worth 1 cent each - such as miles you can earn with the Capital One® Venture® Rewards Credit Card - you would need 120,000 points/miles to cover the whole trip.

However, if you transferred your Chase Ultimate Rewards points to United, you could book the same flight for half as many points.

Currently, a saver ticket from the mainland US to anywhere in Europe only costs 30,000 MileagePlus miles each way, or 60,000 total for a round-trip. That saves you a ton of points, or means you can afford the trip sooner.

The difference is even starker if you want to fly in business or first class, something that might be completely unattainable with cash, but doable with points. To use the same United Airlines example between Chicago and Munich, a business-class ticket on this route starts at around $4,600 round-trip. That would cost 460,000 fixed-value points, or points exchanged for cash back, if you wanted to use them to "erase" the purchase from your statement.

However, the United award chart shows that busines-class saver tickets only cost 60,000 each way, or 120,000 round-trip for the same exact flight, a quarter of how many miles or points you would have needed with cash back or a statement credit.

If transferring points doesn't get you the best deal, Chase Ultimate Rewards and Amex Travel offer another great way to use your points for travel.

The catch is that most airlines only make a few saver-level tickets available for each flight - and they make them available at various points before traveling - so you may not be able to find saver seats right away. Also, it's possible there will be a time when the cash price of a coach ticket in the above example is less than $600.

In that case, transferring your points to United and getting a saver-level round-trip for 60,000 miles is actually not the best deal. Fortunately, Chase gives you another great option to redeem points for travel in those cases.

Chase operates a travel-booking service as part of its Ultimate Rewards website. If you use that service - either online or by phone - to purchase airline tickets or make hotel reservations, you get a 25% bonus in value. In other terms, instead of each point being worth 1 cent, they're worth 1.25 cents. That means that if you were looking at a $600 flight from Chicago to Munich, you would only need 48,000 Chase points, fewer than you would need for a saver ticket if you were to transfer the points to United.

The Chase Sapphire Preferred offers 60,000 bonus points if you spend $4,000 on purchases in the first three months of opening your account. That's worth $600 as cash back, $750 for travel booked directly through Chase, or potentially even more if you transfer your points to an airline or hotel partner.

Meanwhile, the Sapphire Reserve offers 50,000 bonus points if you spend $4,000 on purchases in the first three months of opening your account. When you book travel through Chase, that's worth $750.

American Express offers similar bonuses when using points to book travel through the Amex Travel portal, but it isn't necessarily fixed, and it can vary depending on your flight or hotel.

The Platinum Card from American Express offers 60,000 points if you spend $5,000 on purchases in the first three months of opening your account. That can be worth a ton when transferred to an airline partner.

Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.

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Please note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed, or may no longer be available.

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