If you're a Costco member, you've probably had this experience.
You're waiting on the checkout line when an employee holding a tablet asks if they can scan your membership card. They take a look at your profile and tell you that you're a good candidate for the Costco Executive membership.
In fact, you're such a good candidate that they'd be happy to go ahead and upgrade you right on the spot. What do you say?
On paper, the $120 Executive Membership sounds like a great deal. For just an additional $60 a year you can start receiving 2% cash back on all of your Costco purchases. If you combine it with the Costco Anywhere Visa card — which also gets you 2% back at the wholesale store — you're getting an impressive 4% back every time you buy a 35-pack of Diet co*ke.
But you shouldn't make an impulsive decision about upgrading your membership.
Instead, take some time to review your spending and assess your needs to see if it will actually be a good deal for you. Here's what you need to know.
How much do you usually spend at Costco?
Mandel Ngan | Afp | Getty Images
The main information you'll need to determine if the Executive membership is worth it is how much money you spend at Costco each year.
Calculating if the $120 Executive Membership is worth the upcharge is simple. Because you get 2%, you'll need to spend $3,000 to receive $60 in cash back. At that point, your effective annual membership rate is back down to $60.
If you spend less than $3,000 at Costco each year, you'll end up spending more money overall with the Executive membership's higher annual fee than if you had stuck with the $60 Gold Star tier. If you fall into this bucket, the no-fee Costco Anywhere Visa card is a better choice if you're looking to get cash back from the store.
But if your annual spend regularly tops $3,000, you're better off with the Executive Membership. Every additional dollar you spend after $3,000 will bring your annual fee further and further below $60 and end up saving you money in the long run.
Costco's membership page includes a calculator where you can enter how much you spend at the store each month to see how much cash back you can expect to receive at the end of the year.
In my case, the Costco employee holding the tablet told me that based on my past spending, I was well on my way to comfortably hit the $3,000 annual spend and then some. He urged me to upgrade my membership on the spot.
But what I knew was that my spending history was misleading. Because I had recently moved to a new apartment, I had made a few big purchases at Costco that I wouldn't be repeating in the future. A new mattress and a 4K television were things that I only needed to buy once. And in year two of my membership, I'd be better off with the lower tier.
Additional perks
The Executive membership also offers additional savings on Costco services like their bottled water delivery and pet insurance. If you buy your home or auto insurance through Costco, the Executive membership will get you some exclusive benefits such as roadside and lockout assistance.
If you're on the cusp of a $3,000 annual spend but also use those services, it might make the membership worthwhile.
Of course, you can always take the Executive membership for a test drive.
Costco promises to refund the difference in cost between a Gold Star membership and an Executive membership in your first year if you aren't satisfied. But the refund doesn't happen automatically. To get your money back, you'll need to go to your local Costco location and have the reimbursem*nt processed at the membership desk.
At my local Costco, the membership line can routinely take more than half an hour. You'll need to decide for yourself if that's something you'll make the time to do.
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