Some people join Costco for the savings on groceries and household essentials. Others join Costco to save big on one-off purchases, like laptops, furniture, and appliances.
Costco currently offers two membership tiers. The basic tier costs $60 a year, while the Executive membership costs $120 a year.
At first, you might think that it's silly to pay double for a Costco membership. But you should know that the Executive membership gives you 2% cash back on your Costco purchases. So if you do enough shopping, the Executive membership makes sense. In fact, there's a super-easy way to calculate whether an Executive membership at Costco is right for you.
Will you spend more than $3,000 a year at Costco?
If you typically spend more than $3,000 a year on Costco purchases, or if you anticipate spending more than $3,000, then you should keep or upgrade to an Executive membership. Why is $3,000 the magic number? It's simple.
The cost to upgrade from a basic Costco membership to an Executive membership is $60. And $60 is 2% of $3,000. So if you spend exactly $3,000 at Costco during the year, you'll get exactly $60 back, which pays for your Executive membership upgrade -- only then you've shelled out the extra money upfront. But once your spending exceeds $3,000, the Executive membership pays off.
Granted, if you only spend $3,100 a year at Costco, your financial upside with the Executive membership will be limited. In that case, you're getting $62 back, which means that when you subtract the $60 upgrade cost, you're benefiting to the tune of a whopping $2. (Granted, that $2 is enough to buy you a hot dog and soda combo from the Costco food court and bring home some change, but still.)
However, let's say you spend $4,000 a year at Costco. Your Executive membership will give you $80 back, so you're coming out ahead $20. That could help buy groceries for the week or simply give you a little extra spending money.
Think about larger purchases when making your choice
If you're someone who shops at Costco every week, then there's a good chance an Executive membership will make financial sense. If your Costco visits are less frequent, you may need to crunch the numbers more carefully to determine whether you're likely to exceed $3,000 in spending for the year.
But in the course of running those numbers, keep larger purchases on your radar, since some of the ones on your list may be items you can turn to Costco for. You may, for example, be looking to replace your patio furniture in the coming year. Buying a $1,000 set from Costco makes it more likely that you'll end up spending more than $3,000.
Similarly, if you're planning a vacation, you may decide to use a Costco travel package. That could potentially push you over the $3,000 threshold alone.
It's good to know how much spending it takes to make an Executive membership at Costco worth the money. But also, don't stress the decision too much.
If you don't end up spending enough to make back your $60 upgrade fee, you can downgrade to a basic membership and Costco will refund you the difference to make you whole on that $60. So don't sweat it if your initial calculations end up being a bit off.
