Whether we’re trying something new on the road or enjoying a neighborhood coffee shop, we’re constantly bombarded with opportunities to sign up for rewards, loyalty programs, and bonus points. There are so many that most people just ignore them and default to an immediate “NO” when asked if they’d like to participate. While ignoring every advertisement you see in the world is probably a decent financial decision overall, missing out on the benefits of rewards programs can actually end up costing you money.

It’s worth at least 60 seconds each time you encounter a rewards program to consider its value. But how do you figure out, quickly, which retail rewards programs are worth your effort? There are a few questions you need to ask each time.

How Much Are They Really Giving Me?

Almost every rewards program can be distilled into one number: percent return. Generally, it works like this: You buy something, and you get something back in return. You may get points, stars, free stuff, discounts, or cold, hard cash. We need to convert this into a percentage.

Here’s the formula:

Percent return = (What you get back) / (What you spent) × 100%

Photo of a Chipotle door
Picking up a Sofritas bowl on a road trip through the midwest.

Before you even bother doing this calculation, make sure that the “what you get back” part is something you actually want enough that you would have happily paid cash for it if you weren’t getting it for free. If you eat at a restaurant all the time, and the rewards program for that place gives you free food that you already buy on a regular basis, you’re off to a great start. If the rewards program gives you free soda, and you normally don’t pay for a drink with your food, the value of the reward is a lot less.

Let’s look at an example: This year, Chipotle announced their first rewards program. Its terms are pretty simple: “You’ll get 10 points per $1 spent. Every time you hit 1250 points, you’ll get 1 free entree.” So, to get a free entree, I need to spend $125. The entree I usually buy at Chipotle is a Sofritas bowl, which has a price of $6.96 after tax in my area (as of 2019).

Percent return = ($6.96) / ($125) × 100% = 5.6%

Truthfully though, the percent return isn’t really as important as the actual amount of money saved per month or year. The more I spend somewhere on a regular basis, the more excited I am by small percent returns. If Walmart offered even 1% back on everything in the store, I’d still use their rewards program, because I buy almost all my groceries there! Chipotle has to offer more to get me to sign up because I only spend $7 each time I visit, and I don’t go that often.

Percent return is the definitive number if you’re comparing two mutually exclusive rewards options against each other at the same retailer. For example, if you can get 5% off your purchase at Target by using their RedCard, or 2% cash back by using your credit card, then the RedCard clearly provides better value. Percent return is also useful for comparing different reward redemption options at a given retailer.

Will I Ever Actually Cash In?

Some rewards programs take so long to see a benefit from that they’ll never be worth it. In the previous example, if you only go to Chipotle twice a year, it’ll take 9 years to get your first free bowl. That just doesn’t make sense. But if you’re already visiting once a week, then you’ll cash in 2-3 times a year, which is a nice benefit just for having a free app installed on your phone.

Photo of Lauren in a Peet's Coffee
We skipped out on Peetnik Rewards because we only find ourselves at Peet’s Coffee once every year or so.

As a general rule, if you wouldn’t receive any benefit at all after a full year, the rewards program probably isn’t a good fit for you. Luckily, a lot of rewards programs offer birthday freebies with no purchase necessary, so this is actually an easier box to check than you might think.

In terms of timing, the best rewards programs are the ones that give you a little something every time you visit. Since we’re on the road constantly, we buy a lot of gas. The Pilot/Flying J rewards program offers 3 cents off per gallon every time you get gas — no strings attached. Combined with the fact that we drive a lot, and Pilot usually has the best gas price in town anyway, this is a no-brainer for us, even though it represents a pretty small percent return.

How Much Effort Does It Take?

This is the category where a lot of folks have no mercy. If a rewards program requires much more than zero effort to participate in, it’s worthless to most people. That’s an understandable position, but I would encourage you to realize how little effort most of them really are.

In the Chipotle example, you just need to keep the Chipotle app installed on your phone and scan its barcode at checkout each time you go. If you remember to light up the app while you’re ordering your food, it adds about two seconds to your transaction at the register. At Pilot, you just keep your member card in your glove box and swipe it right after your credit card at the pump. It probably takes more like five seconds because the computers in most gas pumps are ancient.

The main reason people skip out on rewards programs is the convenience factor. Nobody really wants to have to swipe an extra card or open up another app, but trading your money for convenience is rarely a good deal. Try looking at the savings these programs generate in a different way: When you spend less overall, you don’t need to make as much by working. Every little bit of efficiency you can eke out when spending your money represents a little less time you have to spend at the office over the course of your lifetime.

On the other hand, if a rewards program is really frustrating or time-consuming to use, don’t hesitate to drop it like a rock!

The Most Important Rule

If rewards programs represent free money in your pocket over time, why do brands have them at all? There are two reasons:

First, they build customer loyalty. In other words, they make people shop somewhere they otherwise wouldn’t have, just to get the rewards. If you’re doing this, chances are good that the entire benefit of the reward is lost. Remember that episode of Seinfeld where Elaine forces herself to eat 24 terrible sandwiches from “Atomic Subs” just to fill out her stamp card and get a free…terrible sandwich?

Secondly, and perhaps more importantly, they trick people into buying more than they would have without a rewards program. If participating in a rewards program changes your behavior at all, you’re doing it wrong. The only way to benefit from them is to do exactly what you normally would do, and let the program incidentally reduce your overall cost along the way.

The most insidious example of a behavior-altering rewards program is the Starbucks “Star Dash” program: When you use the Starbucks app, you always earn “stars” with purchases (good toward free stuff later), but there are constant promotions telling you that if you maintain certain streaks (like buying a Cold Brew every day for four consecutive days), you’ll earn extra stars. If you spend money on additional drinks because of programs like this, you’re losing the game. Don’t fall for it. Just ignore offers like these and carry on as you usually would.

Regardless of the other factors, if you follow this golden rule, you’re sure to come out ahead with rewards programs.

— Steven

Update, April 2023: We recently returned from a 3-month trip to Australia and discovered that there are some extra challenges when earning rewards overseas. Lauren wrote a guide to installing foreign Android apps that can help you score discounts and free stuff abroad!

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