If you're joining Costco, you have a choice. You could pay $65 a year for a basic Gold Star membership that lets you shop at the warehouse club. Or, you could upgrade to the Executive membership at a cost of $130 per year. In exchange for the extra $65 an Executive membership costs, you get to earn 2% cash back on your Costco purchases.
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You may be on the fence about buying Costco's more expensive membership. Or maybe you already took that leap. Either way, here are three interesting facts to know about the Executive membership and how it works.
1. You're guaranteed your upgrade fee even if you don't make it back
The problem with upgrading to Costco's Executive membership is that you risk not spending enough to recoup the extra $65 it costs. It takes $3,250 a year in Costco spending to earn $65, since the Executive membership gives you 2% back on purchases. So once you've spent even $1 more, you're ahead financially.
But here's a little-known secret about the Executive membership. If you don't spend enough to earn $65 back during the year, Costco will allow you to downgrade your membership and refund you the difference. For example, if you spend $2,700 at Costco one year and only earn $54 back on your Executive membership, when you go to downgrade, Costco will refund you $11 so you get your $65 back either way.
Meanwhile, if you do end up spending more than $3,250, you may pocket quite a lot of cash for the year -- especially if you combine the Executive membership benefit with a credit card offering great rewards. Click here for a list of the best credit cards for Costco shoppers.
2. It's Costco's most popular membership despite costing double
Since an Executive membership at Costco costs twice as much as a Gold Star membership, you might assume that most people aren't willing to pony up the extra money. But actually, the Executive membership is Costco's most popular. The company says 52 million members are of the Executive variety, representing a little more than half.
Now, you might assume that if you're only an occasional Costco shopper, it doesn't make sense to pay extra for the Executive membership. But you never know when a one-time purchase might put you over the $3,250 mark, making it so the Executive membership pays off. Because there's no risk involved, it's worth giving it a try even if you're doubtful you'll make your money back.
3. The maximum amount of cash back you can earn just increased
On Sept. 1, Costco raised the cost of an Executive membership from $120 to $130. At the same time, it increased the maximum amount of cash back you can earn per year from an Executive membership from $1,000 to $1,250.
That may seem like a positive change at first. But it's also unlikely to affect you.
To earn $1,250 in cash back from an Executive membership, you have to spend $62,500 a year at Costco. That's a lot of bulk groceries. For the average shopper, that change won't have much of an impact. However, if you happen to have a lot of large purchases, it's possible you could end up pocketing extra cash back.
For example, say you just bought a house and need to furnish every room. If you buy a living room set, several bedrooms sets, a kitchen table, chairs, accessories, patio furniture, and several TVs from Costco on top of your typical groceries and household supplies, then it's conceivable that you could benefit from the new maximum reward.
But in general, your goal shouldn't be to chase a higher Executive membership reward by making more purchases than you need to. Instead, shop like you normally do and see how much cash back you get at the end of the year -- knowing that in a worst-case scenario, you're going to break even on your $65 upgrade cost.
There's a reason Costco's Executive membership is so popular. Consider giving it a try and seeing how much you benefit from it.
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I'll Bet You Didn't Know These 3 Things About Costco's Executive Membership was originally published by The Motley Fool