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Costco’s membership fees are rising. Does an upgraded Executive membership make financial sense in light of that? Find out here. [[{“value”:”
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It’s the news Costco fans have long been anticipating but didn’t want to hear: The company just announced that beginning Sept. 1, the cost of a membership will increase.
Once Costco’s fee hikes take effect, a basic Gold Star membership will cost $65 per year instead of $60, while an Executive membership will cost $130 instead of $120. That’s not exactly awesome considering that most people’s bills are higher these days than they were a year or so ago.
Given the increased cost of an Executive membership, you may be wondering if the upgrade is worth it. The answer? It depends on how much you expect to spend at Costco each year.
Calculating your break-even point
There’s a reason an Executive membership at Costco costs double what a Gold Star membership will run you (both now and once the store’s fee hikes take effect). With a regular membership, you enjoy savings on the Costco items you buy, but that’s about it. An Executive membership, on the other hand, will give you 2% cash back on your Costco purchases, including those you make online.
If you’re not sure whether an Executive membership will make sense at the $130 price point, all you really need to do is calculate your break-even point — meaning, figure out how much you need to spend at Costco to make back the extra $65 that membership will soon cost. And since we know that the Executive membership offers 2% back on purchases, some simple math tells us that your break-even point is $3,250.
In other words, 2% of $3,250 is $65, which is the difference between a basic Costco membership and the Executive version. So if you think you’ll spend even a dollar more than that per year, the upgrade makes sense.
So what does it mean to spend $3,250 a year at Costco? On a monthly basis, you’re looking at about $271. On a weekly basis, you’re looking at $62.50.
But remember, Costco doesn’t just sell groceries and household essentials. You can also buy big-ticket items like electronics and furniture that might get you close to that $3,250. Or you might book a vacation through Costco that costs more than $3,250. So before you write off getting an Executive membership because of the newly announced higher price point, consider whether you’ll make your money back even once you’re forced to spend $10 more.
It’s a no-risk proposition either way
Maybe you’re not sure whether you’ll manage to spend more than $3,250 a year at Costco. Even so, it could still pay to upgrade to the Executive membership for one big reason: There’s zero risk.
One lesser-known Costco rule is that its Executive members are guaranteed to get at least the cost of their upgrade in cash back form because those who don’t reach that threshold can downgrade their membership and get refunded the difference.
So let’s say you decide to pay the extra $65 on an Executive membership this fall, but then you only end up spending $3,000 over the next 12 months. That only puts $60 back in your pocket. At that point, you can downgrade your membership to a basic one and Costco will refund you $5. So all told, you’ve made back your $65 upgrade fee one way or another.
For this reason, if you’re a frequent Costco shopper, it pays to spring for an Executive membership even once it costs $130. You may not love the idea of having to pay more, but chances are, you’ll come out ahead financially in the end.
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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.
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