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The 25,000 Starpoint bonus for opening the Starwood Preferred Guest® Credit Card from American Express and spending $5k on the card in the first six months is one of my absolute favorite bonus offers. To help people better understand the cards, I’ve already written:

Now I want to delve into what I think is one of the most interesting and often best ways to use Starpoints: Cash & Points awards. You’ve probably heard people touting these awards before as a way to get 5, 6, or 7 cents per Starpoint.

That’s very possible, but I look at Cash & Points awards as a way to do one thing: buy Starpoints for as little as 1.1 cents each. Since I value Starpoints at 2.5 cents, this is a fantastic deal for me.

Why is Cash & Points a way to buy Starpoints for 1.1 cents? Why should that interest you?

This is what I said about Cash & Points in my Primer.

To see why, let’s look at the Sheraton Frankfurt Congress Hotel, a Category 3 property. For a Tuesday this month, the hotel wants 149 euros for the refundable rate. Or you could spend 7,000 Starpoints for a Free Night, or you could spend 3,500 Starpoints + $55.

Comparing them:

  • 149 euros is $198
  • 7,000 Starpoints for a free night is a respectable 2.83 cents per point
  • 3,500 Starpoints + $55 is an incredible 4.09 cents per point

But I didn’t explain what I mean when I say that booking a Cash & Points award is like buying Starpoints. To see what I mean, compare the Free Nights chart to the Cash & Points chart.

Free Nights chart
Cash & Points chart

The difference in the charts is that you pay fewer points by subbing in some of your dollars when booking Cash & Points. This is conceptually equivalent to buying the number of points you are saving for the number of dollars you are spending.

Let’s continue to use Category 3 as an example, you can spend 7,000 points for a free night or 3,500 points plus $55. That is like buying the 3,500 points you save for $55 or 1.83 cents each. The “purchase price” varies by Category and whether the stay is on a weekday or weekend and at a peak or off peak time.

  • Category 1 weekday: 2 cents
  • Category 1 weekend: 6 cents
  • Category 2 weekday: 1.75 cents
  • Category 2 weekend: 3.5 cents
  • Category 3: 1.83 cents
  • Category 4: 1.5 cents
  • Category 5 off peak (12k): 1.83 cents
  • Category 5 peak (16k): 1.1 cents
  • Category 6 off peak (20k): 1.8 cents
  • Category 6 peak (25k): 1.2 cents
  • Category 7 off peak (30k): 1.5 cents
  • Category 7 peak (35k): 1.375 cents

Cash & Points stays offer a chance for me to buy Starpoints for future use every time there is Cash & Points availability. And in all cases except Category 1 and 2 weekends, the purchase price is below my 2.5 cents per point valuation. And when using a Cash & Points night on a Category 5 property during peak time, I am buying Starpoints for future use at only 1.1 cents per point, an incredible rate!

Amazingly some “Starpoint purchases” through Cash & Points are so valuable that they can make an otherwise bad value stay a good value one.* (Example below.)

When Should You Choose a Cash & Points Stay Over Free Nights

There are two things I haven’t mentioned yet:

  1. Free Nights are available whenever a standard room is for sale. Cash & Points awards are capacity controlled.
  2. Free Nights get the fifth night free; Cash & Points awards don’t.

Those two can both change the analysis, which is very simple: Book Cash & Points–that is, buy Starpoints–when the implied purchase price is lower than your future valuation of Starpoints.

Note that I said future valuation. Ignore the valuation of Starpoints on the award in question and just focus on the value you expect to get from the Starpoints you’re buying on future awards. Things that affect this valuation:

  • How you’ll use them. Airline transfers have a different value than hotel nights.
  • How many Starpoints you have. If you already have a million Starpoints, you might not want to buy 5,000 more for 1.5 cents. If you only have 50,000, you should be more likely to buy at that price.
  • How much cash you have. If you’re cash-poor at the moment, you’ll be less inclined to buy Starpoints.
At my current Starpoints balance and future plans for the points, I value Starpoints at 2.5 cents each, so I would take full advantage of Cash & Points nights when I can buy Starpoints for less than 2.5 cents.

How Does This Affect Whether You Should Get the Cards?

Starpoints are very valuable for their flexibility. That makes buying them so cheaply through Cash & Points very attractive. But you can’t buy more through Cash & Points until you have some.

Your Take

Do you look at Cash & Points awards as a way to buy Starpoints for as little as 1.1 cents? Do you prefer Free Nights, Cash & Points, or Nights & Flights awards?

*Let’s work with the Sheraton Frankfurt example I mentioned earlier with some numbers to back up that assertion.

Example: 2.5 cent valuation for Starpoints, $150 hotel valuation

The list price of the hotel is $198, but you value it at only $150 because you have other options in Frankfurt. Clearly you wouldn’t pay $198 cash for a room you value at $150, but should you use a Free Night, Cash & Points stay, or skip the hotel altogether.

A Free Night is a bad deal for you at these valuations. You’d have to give up $175 worth of points (2.5 cents * 7k) for a room you value at $150.

But Cash & Points is a good deal for you. For Cash & Points you pay $55 cash and $87.50 in points (2.5 cents * 3.5k) for $142.50 in total value that you spend. Since the room is worth $150 to you, this is a good deal. And the good deal is entirely because of the points purchase inherent to a Cash & Points stay.

In this example, you are buying 3,500 points for 1.83 cents each that you value at 2.5 cents each. That means you are profiting about $23 on the purchase. [3.5k * (2.5 – 1.83 cents)]

Despite the $23 profit on the points purchase, you are only profiting $7 on the hotel stay. ($150 valuation – $142.50 outlay in cash and points)

That means the points-purchasing aspect of Cash & Points stays flipped an otherwise bad-value stay to a good-value one. This is fairly common. Any time your valuation of Starpoints makes a Free Night a bad deal, but Cash & Points a good deal, it is due to the discounted rate at which you “buy” points during Cash & Points stays.

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