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Signing up for a Costco membership may not be as simple as you’d expect. The warehouse club giant offers two membership tiers, and choosing between them could prove challenging.
If you want to spend as little as possible on a Costco membership, stick with the basic (Gold Star) membership, which costs $60 per year, though it’s rising to $65 in September.
But if you’re willing to spend double for Costco access, you can upgrade to an Executive membership. The cost is $120 per year for now, but come September, it’ll be $130.
Now, there’s a clear benefit to paying for an Executive membership. Once you sign up, you’re eligible to receive 2% cash back on your Costco purchases. And while certain purchases aren’t eligible for cash back, most are, including high-cost items like electronics, appliances, and travel packages. Even if you’re not buying big-ticket items, throughout the year, your everyday Costco purchases could add up, making the Executive membership worth it.
But some people might argue that the upgraded membership is nothing but a waste of money. Are they right?
An Executive membership is probably a waste of money for someone who shops at Costco infrequently. There’s no sense in shelling out double the cost for Costco access when you’re not going there often enough to recoup your upgrade fee. But if you’re someone who shops at Costco on a weekly or biweekly basis, then an Executive membership can easily be worth the money.
Remember, you have to spend some money to join Costco either way. So the question you want to ask yourself isn’t whether you’ll earn enough cash back to recoup your entire membership fee. Rather, your goal should be to make sure you’ll earn enough cash back to cover the cost of the Executive membership upgrade and come out ahead financially.
There are two figures to keep in mind — $3,000 and $3,250. Based on the current cost of an Executive membership, it takes $3,000 in annual Costco spending to recoup the $60 upgrade fee. Once the cost of an Executive membership rises in September, it will take $3,250 in annual Costco spending to make back the $65 difference. But if these numbers sound reasonable based on your Costco spending habits, then the Executive membership is worth getting.
Let’s say you go to Costco twice a month and spend $150 each visit. If we multiply $300 by 12, that’s $3,600. At 2% back, you’re earning $72 with an Executive membership. So even once you subtract a $65 upgrade fee, you’re ahead by $7.
This also assumes you only use Costco for everyday shopping. If you make a couple of larger purchases during the year, you stand to enjoy even more cash back with the Executive membership upgrade.
You can argue that paying for the Executive membership is a waste for people who only spend a few hundred dollars per year at Costco at most. And that’s fair. But if you shop there often and tend to spend a decent amount per trip, then the Executive membership might prove to be an excellent deal.
And if not, guess what? You won’t actually lose any money.
One lesser-known Executive membership rule is that you can downgrade to a basic membership at any time. Once you do, you’ll get refunded the difference between the cash back you racked up with that membership and the cost of your upgrade fee.
Here’s how that might work. Say your Costco membership comes up for renewal this October, once the store’s fee hikes have taken effect. You decide to upgrade to an Executive membership and spend the $130, thereby shelling out $65 more than what a basic membership costs.
If, as you’re approaching the one-year mark, you’ve only racked up $50 in cash back, you can go to customer service and have Costco switch you back to a basic membership. Once your membership comes up for renewal at that point, you’ll only be charged $65 (assuming these new fees stay in place for a while, which is likely). But you’ll also be refunded $15 at the time of your downgrade.
So all told, there’s no risk in signing up for an Executive membership. In a worst-case scenario, all you’re doing is shelling out money upfront that you could’ve hung onto. But if you can afford to do so, then it generally pays to give the Executive membership a try.
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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.
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