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Many people wonder how Costco is able to offer such competitive prices on the items it carries in its stores. And the reason largely boils down to the fact that the warehouse club giant collects a lot of revenue in the form of membership fees. In fact, Costco is now collecting those membership fees 73 million times over.
Now when it comes to paying membership fees, you have a choice. You could stick to a basic Costco membership and pay $60 a year, or upgrade to an Executive membership and spend $120 a year. The upgraded membership offers the benefit of 2% cash back on your Costco purchases.
You may be torn over whether to stick with a basic membership at Costco or pay an extra $60 for the upgrade. But if these signs apply to you, then the upgrade may be worth pursuing.
1. You've begun shopping at Costco on a weekly basis
Some people shop at Costco once a month, or even once a quarter. But if you've started shopping at Costco on a weekly basis, then it may be a good time to upgrade your membership.
Your Executive membership upgrade makes sense when you spend more than $3,000 a year at Costco. That's because 2% of $3,000 is $60 -- your exact upgrade cost. So if you spend $4,000 a year at Costco, you're getting $80 back on your Executive membership, which more than covers your $60 upgrade fee. And if you're now coming to Costco every week, there's a good chance you'll end up spending enough in the course of a year to make back your upgrade cost and still pocket some additional cash back.
2. You've decided to stick to a strict budget to meet savings goals
Some people go through periods where they're more or less strict about spending money. If you've decided you're in a buckle-down period where you're going to follow a tight budget in an effort to grow your savings, then you may end up more reliant on Costco for affordable groceries and household essentials. You may also end up spending more money on groceries so you can spend less on restaurants and takeout.
In that case, it may be a good idea to upgrade your membership. Replacing two to three restaurant meals a week with home-cooked ones could help you bank a lot of cash, but you'll still need to feed yourself. And if you think Costco will become your go-to source for ingredients, then you might come out ahead financially with a membership upgrade.
3. You're planning to make a large purchase at Costco in the near term
As mentioned, it only takes $3,001 in annual Costco spending for an Executive membership to pay off. So if you're aiming to buy a single item from Costco that costs that much or more, then upgrading your membership is an easy call. So for example, if you intend to buy a $3,200 couch, you'd want to look at upgrading before doing so to get the cash back.
Keep in mind, too, that vacation packages booked through Costco are also eligible for cash back under an Executive membership. And one of those could easily run you $3,001 or more, especially if you're booking a trip for a family.
If you only shop at Costco on rare occasions and don't tend to spend a lot of money while doing so, then you may want to stick with a basic membership. Otherwise, consider an Executive membership upgrade if these scenarios apply to you.
And remember, if your upgrade doesn't end up benefiting you financially, you can always downgrade. Costco will even give you the difference if, after a year, you haven't racked up enough cash back to make up for your $60 upgrade cost. So unless you're absolutely certain you won't come close to spending $3,000 a year at Costco, the Executive membership is worth trying out.
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We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. 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.
