Which Visa Credit Card Should You Use At Costco?

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As of yesterday, Costco made the big switch from American Express to Citi. Many people shop at Costco religiously, and the retailer has long kept costs down through exclusive credit card contracts.

Previously Costco only accepted American Express credit cards, while now you can use any Visa card for your US Costco purchases (a MasterCard issued by Citi, on the other hand, wouldn’t be eligible at Costco).

With that in mind, Costco’s new co-branded credit cards have new benefits. Specifically, I’m talking about the Costco Anywhere Visa® Card by Citi and Costco Anywhere Visa® Business Card by Citi, both of which have no annual fees in conjunction with a Costco membership.

These personal and business cash back cards offer the following return on spend:

  • 4% cash back on eligible gas worldwide including at Costco for the first $7,000 per year (then 1% thereafter)
  • 3% cash back on restaurant and eligible travel purchases worldwide
  • 2% cash back on all other purchases from Costco and costco.com
  • 1% cash back on all other purchases

Citi-Costco-Visa

This is a nice improvement over the former Costco American Express. How do I feel about the return the cards offer on various spending categories?

  • The 4% cash back on gas purchases is fantastic, especially since you wouldn’t usually earn bonus points for gas purchases at Costco (since those purchases are coded differently than other gas retailers)
  • The 3% cash back on restaurants and travel purchases is a solid return as well, though there are other great cards for dining and travel purchases
  • The 2% cash back at Costco is solid, so you won’t consistently do significantly better with another card
  • The 1% cash back offered on other purchases isn’t really competitive nowadays, given that there are cards which offer up to 2% (or more) cash back

What other Visa cards should you consider for Costco purchases?

Use the Chase Freedom for up to 5x points

The Chase Freedom offers 5x points in rotating quarterly categories, valid for up to $1,500 of spend per quarter.

However, for the rest of 2016, the Chase Freedom has added wholesale clubs as one of the eligible categories where you can earn 5x points. That means that you can still earn 5x points on up to $1,500 of spend at Costco in the third quarter, and on up to $1,500 of spend at Costco in the fourth quarter.

The 5x points can be converted into 5% cash back, or in conjunction with the Chase Sapphire Preferred® Card or Ink Plus® Business Credit Card, you can convert those points into “premium” Ultimate Rewards points. These can be transferred to Chase’s airline or hotel partners, including Hyatt Gold Passport, Korean Air SkyPass, Singapore KrisFlyer, United MileagePlus, etc.

Personally I value premium Ultimate Rewards points at 1.7 cents each, so to me those 5x points are worth ~8.5%.

Use the Chase Freedom Unlimited for 1.5x points

Chase recently unveiled the Chase Freedom Unlimited, which is a fantastic new offering. Unlike the Chase Freedom, it doesn’t offer 5x points in rotating categories.

Instead it offers 1.5x points on every dollar you spend, regardless of the category.

Chase-Freedom-Unlimited

As is the case with the Chase Freedom, those points can be redeemed as cash back, meaning you’re earning 1.5% cash back.

However, in conjunction with the Chase Sapphire Preferred® Card or Ink Plus® Business Credit Card, you can convert those points into “premium” Ultimate Rewards points. Those can be transferred to Chase’s airline or hotel partners, including Hyatt Gold Passport, Korean Air SkyPass, Singapore KrisFlyer, United MileagePlus, etc. I value those points at 1.7 cents each, so to me earning 1.5x points per dollar spent is the equivalent of earning a return of ~2.55%.

Bottom line

The Costco Anywhere Visa® Card by Citi and Costco Anywhere Visa® Business Card by Citi are compelling for spend at Costco, especially long term. The cards can even be worthwhile for spend at gas stations and on restaurants and travel, given that you earn 3-4% cash back. That’s great for a no annual fee card. However, I wouldn’t use these cards for spend in other categories, where you’re getting a return of just 1%. There are other cards which offer a much better return on everyday spend.

Even at Costco, there are certainly other cards to consider using, like the Chase Freedom and Chase Freedom Unlimited (that’s ironic, because the cards are issued by Chase). Which card is best for you depends on your spending patterns.

Which card do you plan on using for your Costco purchases?

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Comments

  1. @Lucky: Any idea if Citi has plans to transition from Mastercard to Visa? I was told by a Citi attendant that 95% of their cards are issued by MC so I could not have the Premier card under Visa which would be great to use for gas at Costco. I still don’t understand the deal that Citi has with Costco where as you just mentioned above the best cards to use there are from Chase. BTW, I don’t expect that many Costco members will get a Costco Visa card. Amex was probably not a common card that people would have so they had to apply for one if they wanted to shop at Costco. Now, for Visa, I guess that anyone that has a card from any store like GAP, Sears, etc.. will have Visa card and be able to shop at Costco.

  2. @Lucky, missed it if you made reference. Freedom 5x won’t work directly at gas pump, so purchase a cash card in warehouse to earn 5x UR as well.

  3. @Nick – thanks for answering my question before I even posted it. It’ll be easy to meet the $1500 Freedom amount on my card and my wife’s card even without the gas piece 🙂

  4. Right now, my only Visa is a debit card, so I plan on using my Amex Membership Rewards Gold to purchase visa gift cards at the supermarket and get my 2x points.

  5. @Santastico Everyone who had the Amex card got a Visa as Citi bought those accounts from Amex. They will keep using the card out of inertia

  6. We will be using our 2 Freedom cards at Costco for the rest of the year. If we don’t make the full $3k Costco spend per quarter, and Chase doesn’t announce an extension of this deal into 2017, we’ll buy cash cards to use after the first of the year. Of course, if Amazon is again a quarterly bonus category for the winter, that Amazon Christmas spend makes it that much easier to hit our $3K in the fourth quarter.

    Funny to think that Citi paid so much for this, and now Chase is stealing their lunch with the Freedom deal. 😉

  7. Also note that the Fidelity credit card is switching from Amex to Visa (or has by now – I am waiting for my card replacement in the mail). That gives unlimited 2% cashback on everything if you have it deposited to a Fidelity account (can be set automatically and you can quickly ACH sweep out to wherever you want). Not that this is better for Costco but is a good option for everything else where you cannot get more than 2%.

  8. …another Costco tip: buy Executive Membership and get another 1% cashback. If you do not get enough cash back to cover the difference in membership cost in the coupon at the end of the membership year, go to the Costco membership counter and they will refund you the difference.

  9. It has 3% forex fee so the worldwide 4x on gas worldwide and 3x on travel worldwide is really borderline to a scam. Surprising not a word mentioned in this blog. The slope is getting slipperier by each plug.

  10. Reading this post we read about three good possible choices. The Freedom card makes sense for the first $1500 of spend each quarter for the rest of the year. Let’s not forget about the Bank of America Cash Rewards Visa cards that will earn 2% on the first $2500 each quarter.
    When calculating (or predicting an estimate) of the value of the UR points, remember to factor in the annual fees that the CSP or Ink+ cards require.k
    It definitely looks like Bank of America and Chase are both giving Citi a run for their money. I would have to hope that Citi estimated these kind of factors into the pricing of their agreement – that people could use non-Citi Visa cards and Citi at least gets the fees from processing those non-Citi Visa cards.

  11. The Fidelity AMX 2% cash back card that cannot be used after July 22 was replaced by another companies Visa 2% card. I was told by their representative that it only sweeps after $2500 of spend, rather than quarterly with the AMX, which is a nonstarter for me.

  12. Chase told me yesterday that their Visa does not offer the 5 times deal, only the MasterCard, which can’t be used at Costco.

  13. So the switch just happened and I am not happy. I did not have a Costco AmEx card, but wanted to change one of my Citi cards to a Costco card. Citi refused and said I would need to reapply. That was after I waited 25 minutes on hold, so for me, I am out. It also puts a bad taste in my mouth with Costco since I did have a different AmEx card I used at Costco.

  14. Two big disadvantages to the Citi Costco card:

    First, you have to wait until they get around to sending you a coupon in April or thereabouts. If you don’t notice it in the mail – piled in with all the other credit card junk – tough luck.

    Second, you have to spend the coupon by August. At Costco. And not on gas.

    It is a nusiance, and easy to screw up. Because of this heir gas points aren’t worth 4 cents, and the other categories are even less desirable. Especially as long as Freedom is 5x on everything at Costco. Even if you don’t do Ultimate Rewards (and who would be that foolish?), the cash back is easy, not the convoluted Costco card annoyance.

    I told my wife, never use that Citi card. Hope it stays that way.

    Surprised Lucky didn’t give any of this a menton.

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