Some people don't like the fact that you have to spend money for the ability to shop at Costco. And I can see where they're coming from. I wouldn't dream of paying a fee to enter my regular supermarket. So why is it okay for Costco to charge a membership fee?
I'll tell you why. Costco uses its membership fee revenue to offset its costs. And it's because of those fees that it's able to offer up such competitive prices on the items it sells. So I don't mind paying money to enter Costco, especially since the savings I enjoy during the year more than exceed the cost of a membership.
In fact, not only do I not mind paying for a membership, but I willingly pay double for my Executive membership, priced at $120 a year. A basic (or Gold Star) membership only costs $60.
However, there's a big perk with the Executive membership: You get 2% cash back on your Costco purchases with a few exceptions (unfortunately, gas station and food court purchases don't count). So if you spend $5,000 a year at Costco, you get $100 back with an Executive membership. That's enough to cover the extra $60 that membership costs and still leave you $40 richer.
You should also know that it's possible to earn up to $1,000 a year with an Executive membership. But you'll need to spend a lot of money to score the maximum amount of cash back.
Do you have $50,000 a year to spend at Costco?
While Costco is willing to give you up to $1,000 cash back on your Executive membership per year, getting that much money requires you to spend $50,000. Chances are, you're not doing that. However, there's technically a chance that you might reach the maximum cash back threshold under the right circ*mstances.
Let's say you've just bought a house and need to furnish every corner of it, from your living room to your basem*nt to your patio. If you buy a ton of furniture from Costco, you could conceivably reach the $50,000 mark -- especially if you're also buying large appliances, like a fridge, washer, and dryer.
Similarly, let's say you have a family of six and you've been saving for years for a dream vacation in Hawaii. A week-long package could cost you over $23,000 when you factor in lodging, a rental car, and first-class airfare for your family. If you're also spending $20,000 on home improvements through Costco this year, you may hit the $50,000 mark when you factor in groceries and everyday purchases.
Realistically, though, most people aren't racking up a $50,000 annual Costco tab. So while you can technically get $1,000 back from Costco yearly with an Executive membership, you shouldn't bank on it.
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The magic number where an Executive membership makes sense
Even if you can't spend enough to get anywhere close to $1,000 back from your Executive membership in a year, the upgrade makes sense once your Costco spending totals more than $3,000. That's because 2% of $3,000 is $60, which is the cost of the upgrade from a basic membership. So at that point, you're breaking even. Spend $3,050 at Costco, and you're eligible for $61 back, leaving you $1 ahead.
In fact, your goal shouldn't be to score $1,000 back from Costco because you might end up in serious debt getting there (the exception being if you're making large purchases you've saved up for ahead of time). So rather than chase that $1,000 in cash back, keep tabs on your Costco spending to make sure that the Executive membership upgrade continues to make financial sense for you.
And if you find that it doesn't, just go back to a basic membership. Costco will let you downgrade and refund you the difference without a hassle, so there's really nothing to lose by trying the Executive membership.
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