Joining Costco is a great way to reap savings on a wide range of products and services. And one good way to eke extra value out of your Costco membership is to sign up for the Executive membership program.
A basic Costco membership costs $60 a year. By contrast, you'll pay double, or $120, for an Executive membership.
But that extra $60 per year comes with one very notable perk — the opportunity to score 2% cash back on your Costco purchases. So it's important to run the numbers and see if an Executive membership makes sense for you.
It's also important to know the ins and outs of the program so you can make an informed decision. Here are a few important details.
1. Your break-even point is $3,000
If you spend $3,000 a year at Costco, you break even on the Executive membership upgrade fee of $60, since 2% back on $3,000 equals $60. If you're not sure whether the Executive membership is worth it, take a look at your typical Costco spending and see what it amounts to.
And if you're brand-new to Costco, think about your schedule and household needs. Do you have a larger family? If so, you may be more inclined to buy a lot of groceries at Costco, making it more likely that you'll end up spending $3,000 a year. Similarly, if you have a Costco nearby and feel you'll have time to shop there often, then an Executive membership could make sense.
2. There's a limit as to how much cash back you can earn
Costco Executive members get an annual reward certificate that totals the amount of cash back they accrued over the previous 12 months. But you should know that your Executive membership cash back will be limited to $1,000 a year. Clearly, if you're spending an extra $60 for the upgrade, you still have the potential to come out $940 ahead, so that cap shouldn't really deter you from signing up for the Executive membership.
Also, to snag $1,000 in cash back on an Executive membership, you need to spend $50,000 a year on Costco. Now to be fair, travel purchases count toward that cash back. And even with Costco's discounts, those packages can be pricey, especially if you're booking for multiple people. But even so, your chances of actually spending more than $50,000 a year at Costco are probably pretty slim.
3. Certain purchases won't qualify for cash back
You can earn cash back through your Executive membership on a wide range of Costco purchases. But certain items don't count. If you're banking on those purchases to come out ahead financially on your $60 upgrade, you may need to re-run those numbers.
Gas purchases, for example, do not earn you cash back as an Executive member. Neither do cigarette purchases or alcoholic beverage purchases in certain states.
Additionally, Costco Shop Cards (Costco's version of a gift card) won't be eligible for cash back, and neither will postage stamps. And if you're thinking of buying a car through Costco to hit that $50,000 spending threshold to score the maximum $1,000 back, think again. Vehicle purchases don't qualify, either.
However, rest assured that online purchases do count toward the Executive membership. So if you prefer to shop from home, it shouldn't stop you from racking up cash back.
4. You might enjoy extra savings on different Costco programs
Costco makes certain programs available to all of its members. These include bottled water delivery, auto insurance, and pet insurance. You may, however, be eligible for additional savings as an Executive member, should you opt to utilize these and other services.
5. You get a free magazine out of the deal
Costco Executive members get access to Costco Connection, a monthly magazine that comes in the mail. It includes roadshow schedules so you can see which new products are headed to your local Costco for a limited time as well as recipes and other updates. Granted, it may not be the most exciting perk you'll get as an Executive member — but it's worth knowing about.
6. You're not stuck with the Executive membership if it doesn't end up working for you
You may decide to upgrade your Costco membership only to then experience a shift in your schedule or habits that has you shopping there less frequently. Rest assured that if you don't end up wanting or needing your Executive membership, you're not stuck with it. Simply request to downgrade for a refund.
There's lots to like about Costco's Executive membership. But there are also certain pitfalls you might encounter. If you're banking on gassing up your car at Costco every week to make back your upgrade fee, for example, then that strategy won't work. So it's helpful to know the details before signing up.
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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.