Image source: Upsplash/The Motley Fool

Costco memberships got more expensive this year. A Gold Star membership will now set you back $65, and an Executive membership costs $130. You earn 2% cash back with the latter, which can easily make up for the cost. If you spend over $271 per month at Costco, you’ll come out ahead on the additional fee.

But there are a few rarely discussed downsides to a Costco Executive membership. Before you upgrade, it’s worth knowing about them.

1. Some purchases don’t earn cash back

When you’re a Costco Executive member, you earn a 2% annual reward on eligible purchases. “Eligible” is the key word here. While most Costco spending qualifies, there are exclusions that won’t earn cash back. Here are some of the most common types of Costco purchases that aren’t eligible for any rewards:

• Gas
• Food court purchases
• Membership fees
• Alcohol in certain states
• Tobacco
• Costco Shop Cards

If a lot of your Costco spending is at its gas stations, an Executive membership may not be the best choice. You won’t earn cash back on any of that gas spending.

Fortunately, an Executive membership isn’t the only way to earn rewards when you shop at Costco. There’s another option that you could use on its own or in combination with an Executive membership. Check out the No. 1 strategy for saving money at Costco to learn more.

2. It could lead to overspending

Cash back can help you save money when you stick to your normal spending habits. If you spend $8,000 per year at Costco, earning 2% back would save you $160. But the math is never going to work out in your favor if you overspend because you’re earning cash back.

Let’s say an Executive membership convinces you to splurge more when you shop at Costco. Your yearly spending goes from $8,000 to $9,000. You earn another $20 back, but after factoring in the additional $1,000 you spent, you’re down $980.

This is a common issue with rewards programs. One recent study (“Cash-Back Rewards: Effects on Spending and Debt Accumulation”) found that consumers using cash back credit cards increase their spending by 32%. A Costco Executive membership is only a good idea if you can resist the temptation to start spending more.

3. You only receive your cash back once a year

Costco doesn’t let you redeem your cash back any time you want. It’s an annual reward, paid out as a 2% reward certificate. This is mailed out with your membership renewal notice about two months prior to your annual renewal date.

It’s not a huge issue. You’ll still get your cash back, after all. But if you were hoping to cash in every month, you won’t be able to do that. Also, you need to be a paid Executive member at the time the reward is issued to get your certificate. If you downgrade your Executive membership, you lose any rewards you’ve accumulated.

While a Costco Executive membership has some downsides, it can still be a great deal if you shop there often. Keep in mind that you can also earn even more rewards if you pay with the right credit card. To earn as much back as possible, explore our curated list of the best credit cards for shopping at Costco.

Top credit card to use at Costco (and everywhere else!)

We love versatile credit cards that offer huge rewards everywhere, including Costco! This card is a standout among America’s favorite credit cards because it offers perhaps the easiest $200 cash bonus you could ever earn and an unlimited 2% cash rewards on purchases, even when you shop at Costco.

Add on the competitive 0% interest period and it’s no wonder we awarded this card Best No Annual Fee Credit Card.

Click here to read our full review for free and apply before the $200 welcome bonus offer ends!

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.
Motley Fool Money does not cover all offers on the market. Editorial content from Motley Fool Money is separate from The Motley Fool editorial content and is created by a different analyst team.Lyle Daly 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.