Basic vs. Executive Costco Membership: Here's the Easiest Way to Decide

If you're like me, you're often wary of upgrading to the so-called "better version" of any given item. Case in point: I pretty much never fly business class because I'm not convinced I'll get such a better experience than I will in economy -- so why put the higher charge on my credit card? I mean, a plane ride's a plane ride, right? And let's face it -- you're going to have to deal with turbulence whether you're sitting packed like a sardine or in a seat with extra leg room.

Similarly, when I was first approached by a customer service representative at Costco about upgrading my Gold Star (basic) membership to an Executive one, I hesitated. Actually, scratch that. I didn't hesitate -- I said no.

But then I ran the numbers and realized that an Executive membership absolutely made sense for me. That was about 10 years ago, and I've been an Executive member since. And if you're not sure an Executive membership upgrade is necessary for you, you can use the same easy formula I did to see if it makes financial sense.

The benefit of upgrading

A Gold Star membership at Costco costs $60 a year, whereas you'll pay $120 a year for the Executive version. It used to be that Executive members got to shop at Costco earlier than basic members, and that perk, to me, was huge. Unfortunately, it no longer exists. But the primary benefit of an Executive membership is still very much in play, and it's getting 2% cash back on your Costco purchases.

Granted, there are a few exceptions, like gas and food court purchases. Sorry -- your $1.50 hot dog and soda combo won't put $0.03 back in your pocket each time.

But most Costco purchases will, whether it's furniture, electronics, or travel. So the amount of extra cash you pocket in the course of a year could more than make up for your $60 Executive membership upgrade fee.

The simple formula that helped me decide which membership to get

When I was deciding whether to keep my basic Costco membership or pay for an upgrade, I figured out how much annual spending it would take for me to break even on my upgrade cost, and then determined if I was likely to exceed that threshold. If so, the upgrade made sense.

The cost of an Executive membership upgrade is $60. If you spend $3,000 a year at Costco, you get your $60 back, since basic math tells us that 2% of $3,000 equals $60.

If you expect to spend $3,001 at Costco or more in a year, bam -- the upgrade makes sense because you'll get paid back. If you've been a Costco member for seven years, have no changes to your household situation, and have never spent more than $1,500 at the store over a 12-month period, then hold off on upgrading.

It really is that simple.

If you're on the fence, get the upgrade

If you're not sure if you'll spend $3,001 or more in a year at Costco, here's what you should do: Upgrade your membership, but know in the back of your mind that you can always downgrade.

See, one lesser-known Costco perk is that if you decide to revert to a basic membership from the Executive tier because the latter didn't work out, Costco will make you whole if you don't manage to accrue $60 in cash back. Yes, really. Costco is just that good about customer service.

So let's say you pay $60 to upgrade your membership and only spend $2,400 at Costco in the coming 12 months. That puts just $48 in your pocket at 2% back, so you've lost out. Only you haven't, because if you tell Costco you want to go back to a basic membership, it'll also refund you $12 so you're not actually out any money.

Because of this, the only reason not to upgrade your membership at Costco is if you're absolutely sure you won't spend enough to make back the extra $60. If you're on the fence, take the leap. There's really nothing to lose.