Thoughts on Costco and VISA for Next Spring

As a suburban father of two, it never surprises me when the name “Costco” comes up in conversation.  It’s up there with “curriculum night”, “standardized tests”, “HOA dues”, “Toyota Camry”, and lots of other terms that make me cringe at who I’ve become in my middle age.  Whaddya gonna do, right?
Unless you have been sleeping under a rock or unless you never actually shop at Costco, you may have heard that after almost twenty years, Costco is ending their exclusive relationship with American Express and is moving to the VISA payment network.  Moreover, the co-branded American Express / Costco card will be transitioned to a co-branded Cit / Costco replacement.  Marci and I do shop at Costco a lot, but we are not one of those couples whose shopping cart requires both of us to push it in order to join the angry mob at the front checkouts.   We do not even have the Costco AMEX card  We probably put $3000 a year on various AMEX cards at Costco, so we are not their power buyers.  I am always, however, asking the eternal question “how does this affect my rewards strategy?”, so when I heard about this change, I starting reading lots of articles about it.  You know what I decided after reading the comments from at least ten articles?  There are a lot of people out there who must have an intrinsic need to be a victim.  “I’m done with Costco!”, “I will never have a Citi card!”, and “Sam’s Club here I come!” are just some of the themes out there, and I have to say that this is ridiculous.  It’s a payment method, folks, and when one goes away, you have to adapt and find another one. 

You won’t be using this in Spring 2016

Now, before you jump on me and say “But I love my Costco AMEX”, let me ask what I would ask two high school students who are looking to get married…”have you played the field when it comes to credit cards?”  There are lots of other fish in the sea, and when it comes to moving from AMEX to Visa, brother, there are a LOT more fish in the sea.  Let’s take a look at a summary of the Costco AMEX as it stands right now:
  • It earns 1% back at Costco…WOW.  That is so unbelievably…ordinary.  Almost every AMEX credit card I know earns 1% back at Costco.  And so will every VISA after the switch.
  • It earns 2% back on dining and travel.  Now, that’s a loss that is actually worth mourning…to a degree.
  • It earns 3% back on gas, including Costco gas.  Again, this is a solid rate of return that is worth a modicum of despair.
  • It earns 1% back on everything else, but that’s the case with basically every card out there.
  • You get your reward in the form of a rebate annually.  Are you kidding me?  I have to wait a year for it?
Now, I apologize for my outright sarcasm in the previous section, but I am just trying to point out that this card’s eventual death is not one to lose one’s mind over.  It’s a very solid no annual fee card, and it’s an AMEX, so Costco happily accepts it.  And before I get to the VISA switchover, consider that AMEX has another no annual fee card that is worth looking at.  It’s called the Blue Cash Everyday, and it earns:
  • 3% back on groceries at standalone grocery stores (on your first $6,000 in spend per calendar year, after that it’s 1%)
  • 2% back on gas (not including Costco gas)
  • 1% back on everything else, including Costco purchases
  • Your cash reward posts each billing cycle, 12 times per year

Is that as good as the Costco AMEX?  For some people, it is, and for others it is not.  For families, who generally care about this a lot more than most single folks, I’m guessing it’s a close contest.  But the real issue in my opinion is that so many Costco AMEX cardholders are looking for the “one true soulmate card”, just like those hypothetical high schoolers I referenced.  A better strategy is to have and use BOTH of these cards!  Then you would get:

  • 3% back on groceries
  • 3% back on gas
  • 2% on dining and travel
  • 1% on everything else, including Costco
  • You would get a monthly trickle of rewards from one card and then the annual bonus from the other.
And you still have no annul fees!  By the way, for $75 a year, the Blue Cash Everyday Preferred card offers a whopping 6% back on groceries and 3% on gas.  I framed the earlier discussion with a no annual fee card, but I wanted to mention it since that annual fee is absolutely worth paying for most families.
One more thing before we talk about the switch to VISA.  I love hypotheticals.  Suppose your annual credit card expenditure includes $5,000 at Costco, $10,000 on dining, $5,000 on travel, $3,000 on gas, and $20,000 on other spending.  In this scenario, the Costco AMEX will give you a rebate of $640, and you will have to wait a year to get it.  Your rate of return is $640 / $ 43,000, or 1.49%. The Capital One Quicksilver VISA is as easy as credit cards get.  It pays 1.5% cash back on everything, period.  Rewards post during the billing cycle, which means you literally only have to wait a few days to get the reward from each transaction.  This card offers rewards in the form of cash back, which can be used for statement credits or gift cards.  Now, your spending numbers will certainly vary from mine in the scenario above, but notice that there is only a .01% difference between the two.  And unlike AMEX, VISA is accepted virtually everywhere.

Here is a solid VISA choice

The Chase Freedom VISA is a lot more complicated, but it could also be a lot more lucrative if you play your cards right (sorry).  The Chase Freedom earns Chase Ultimate Reward points, which are very flexible and can be redeemed in a few different ways.  I have detailed these different approaches in the Flexible Point Card section of this article.  The Chase Freedom earns 5x the points in a different category each fiscal quarter.  For 2015, those categories were/are groceries (Q1), dining (Q2), gas (Q3), and Amazon (Q4).  All other purchases earn 1x the points, and the quarterly bonus applies to the first $1500 in spending.  So, for example, you can earn 5x the points on dining on your first $1500 in dining during Q2.  The beauty of these points is that you can redeem them straight up for cash back or you can redeem them travel and make them at least 25% more valuable (depending on whether you use Chase’s travel portal for a straight 25% boost to your points or transfer them to Chase’s travel partners (e.g. United, Southwest, Hyatt, et al) for more powerful redemptions.

And here is another solid VISA

Those are just two of the countless VISA cards out there to consider.  Costco will be happy to accept any of them.  They will also accept the new co-branded Citi / Costco VISA, and I have yet to see anything in terms of that card’s perks.  Maybe the bonus categories will change, maybe not.  But I can tell you with 99.9% confidence that the new card will still only give you 1% cash back on Costco purchases, just like almost every card out there.  Given that fact, my advice for the “one true card” crowd is to pick the VISA card whose bonus categories match your spending habits.  The value proposition from shopping at Costco is that you are already saving a lot of money.  Whatever you get back from your credit card is gravy. One last thing.  If you spend $5000 at Costco each year, you’re going to get a whopping $50 back on that particular expenditure using any VISA that gives 1% on Costco purchases.  So, please don’t let Costco drive your credit card decisions.  If the new Citi Costco card has awesome bonus categories that match your needs, then use it.  If not, then trust me, there are tons of better VISA cards to choose from. I’ll see you at the sampling tables!
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