Should I always use my Costco credit card at Costco?

If you follow money expert Clark Howard, you know that he and everyone at Team Clark are huge fans of Costco stores. We love their great prices and friendly service, and we like to save time shopping in bulk without having dozens of competing products to consider.

The biggest decision that you’ll have to make when shopping at Costco is how to pay for your purchases. As with any purchase, you should only use a credit card if you can avoid interest by paying you entire statement balance in full. And you should know that Costco only accepts credit cards that are part of the Visa payment network — no Mastercard, American Express or Discover.

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Is the Citi Costco Anywhere Visa card always the best way to pay for Costco purchases?

Citi offers both a business and a personal version of its Costco Anywhere Visa card, but are these credit cards the best way to pay for your Costco purchases?

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How the Costco Citi card rewards work

Both the consumer and business versions of the Costco Anywhere Visa from Citi offer you 4% cash back on your first $7,000 of gasoline purchases each year, including those at Costco stores or at any other gas station. Just be aware that the Costco Anywhere Visa will only earn 1% cash back, not 4%, for gas purchased at superstores, supermarkets, convenience stores and warehouse clubs other than Costco or for fuel used for non–automobile purposes. You also get 3% cash back on all travel and dining purchases worldwide. You only receive 2% cash back for other purchases at Costco stores and from Costco.com, and 1% cash back on all other purchases.

Benefits include damage and theft protection, and an extended warranty policy that adds two years to the manufacturer’s warranty of eligible items purchased at Costco. As a Citi card, you can use its Price Rewind service, which will automatically search for lower prices on the items you bought (so long as you register them) and give you a refund of the difference if a lower price is found within 60 days. There’s no annual fee for these cards with your paid Costco membership and no foreign transaction fees.

Are there any downsides to the Costco cards?

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It’s surprising that you only receive 2% cash back from the Costco card when shopping at Costco itself, even while it offers you 3% for travel and dining and 4% for gas purchases at Costco and elsewhere. In contrast, many other store cards offer you rewards worth as much as 5% of your spending for in-store purchases. Examples include the Target REDCard, the Amazon Prime card and the Lowe’s Advantage card.

Another flaw with the Costco cards is when you receive your cash back. With these cards, you receive your cash back just once a year, as an annual credit card reward certificate once your February billing statement closes. You can then redeem it for cash or merchandise at U.S. Costco Warehouses or Costco Travel including hotel, airline, cruises and car rentals . And should your account be closed before February for any reason, you’ll forfeit all of the rewards that you’ve earned.

But with nearly all other credit cards, you’ll receive your rewards each month, shortly after your statement period ends.

Finally, the Costco cards only offer you 1% cash back on all purchases that don’t qualify for a bonus, but that’s true with nearly all reward cards that offer bonuses for certain purchases.

But what about the alternatives?

The credit card industry is extremely competitive, and there are other cards that can offer you some impressive rewards that rival the Costco cards. Before you apply for a Costco credit card, consider these other suggestions suggestions:

Capital One Venture Rewards: This card offers you double miles on all purchases, and these miles are worth one cent each as statement credits towards travel reservations like airfare, hotels, car rentals and cruises. This means that you’ll be earning rewards worth 2% of your spending everywhere, not just at Costco. For most people, you’ll earn more valuable rewards using this card everywhere than you would with the Costco card. There is a $95 annual fee for this card, but it’s waived the first year. So if you use your card to spend more than $9,500 a year on purchases that don’t qualify for

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Fidelity® Rewards Visa Signature® Card: This card offers you unlimited 2% cash back rewards deposited into your qualifying Fidelity investment account . And like the Capital One Venture Rewards card, these rewards are earned on all purchases, including those at Costco or anywhere else. There’s no annual fee for this card.

Chase Freedom Unlimited: This card, by itself, offers you 1.5 cents in cash back on all purchases. If you used it for all of your purchases, then you might end up with more rewards each year than if you used your Costco Anywhere Visa card for everything, but it still offers you fewer rewards for Costco purchases. However, if you also happen to hold a Chase Sapphire Preferred card, then you can redeem the points from your Chase Freedom card for 1.25 cents each towards travel booked directly through Chase. Better yet, the Sapphire Reserve offers you 1.5 cents in value per point redeemed directly for travel reservations. This credit card combinations will offer you between 1.875 and 2.25 cents in value per dollar spent with your Freedom Unlimited at Costco, but there’s another option…

Sapphire Preferred and Reserve cardholders can also transfer these points to miles with nine different airlines or points with four hotel programs. And when you can redeem these points or miles for expensive last minute flights, seats in business or first class or pricey hotel stays, then it’s possible to receive several cents in value per point or mile redeemed.

For example, you can transfer these points to the Southwest Rapid Rewards program, which offers you about 1.5 cents in value towards flights in their lowest fare class, called “Wanna Get Away.”  This brings you to a total of 2.25 cents in value per dollar spent, better than the Costco Visa can offer there. But it’s still less than what the Costco cards offer you for gas, travel and grocery purchases.

There’s no annual fee for this Chase Freedom Unlimited, but the Sapphire Preferred has a $95 annual fee and the premium Sapphire Reserve card has an annual fee of $450.

My plan for Costco purchases

Since I hold a Sapphire Reserve card, I use my Chase Freedom Unlimited to receive a minimum of 2.25 cents in free travel for most of my Costco purchases. However, when it came time to buy a new television, I borrowed my father-in-law’s Costco Anywhere card to earn 2% cash back, receive a two year addition to its warranty and utilize the Citi Price Rewind program. It turned out to be a smart move, as I eventually received a $60 rebate when it found a lower price at Sam’s Club a month later.

The bottom line

Citi’s Costco Anywhere card is a great product, but it’s only one of many competitive Visa cards that you can use at Costco. By taking a look at these alternatives, you can choose the best one for your needs.

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