Should You Get a Costco Membership Just to Buy Gift Cards?

One of the perhaps lesser-known perks of shopping at Costco is the gift card discounts. Costco has an array of retailer and restaurant gift cards for sale up to 25% off the face value.

This is effectively like getting a 25%-off coupon to some of your favorite places. An easy personal finance win.

If your regular spending already includes some of these brands, then you could come out way ahead by using discounted gift cards to pay. (Discounts of even 10% are better than you'd get with the top rewards credit cards.) In fact, in some cases, you could even justify the cost of a Costco membership in gift card savings alone.

Doing the math

How much you can save will depend on your personal spending -- you don't want to add extra spending just to make use of gift cards. But here are a couple of examples.

Southwest Airlines

Folks who travel on Southwest can have an easy win right here. Costco currently has a $500 e-gift card for Southwest Airlines on sale for $429.99 (through Dec. 25, 2023). That's a $70 (14%) discount. So even if you subtract a $60 membership, you're still coming out ahead by $10. And that's just one purchase.

A note on travel gift cards: In the case above, the 14% discount is a better return than you'd get with most travel rewards cards. However, if you're thinking about buying travel gift cards, make sure you crunch the numbers to ensure you're not actually missing out on better credit card rewards. You should also consider if you need your credit card's travel insurance benefits.

Dinner and a movie

Date night keeps getting more expensive. You can knock at least 20% off the price with gift cards from Costco, though.

Pick up some Fandango cards ($79.99 for four $25 e-gift cards) to cover movie tickets and concessions. Then share a romantic dinner at Buca di Beppo ($74.99 for four $25 e-gift cards through Dec. 24, 2023). If you still have room -- and the date is going well -- you can head over to Cold Stone Creamery (four $15 e-gift cards for $47.99) for dessert.

By the end of the night, you've ideally had a lovely time. You've also saved $52. That's not quite enough gift card savings to pay for a full membership -- but it will be by the second date.

Downsides to Costco gift cards

Other than the obvious -- the annual membership fee -- there are a few other downsides to consider when purchasing Costco gift cards. For one thing, if you want physical cards, you have to shop in-store. Costco.com only sells e-gift cards that are delivered through email.

If you do head to the store, it might not have what you want. Stores tend to keep a more limited array of gift cards than you can find online.

Then there's the amounts. Most gift cards are like everything else at Costco: bulky. Get ready to buy multiples of any gift card you're after. This means you really need to make sure you can get full value from the gift cards, since they'll require a bit of investment upfront.

Other ways of getting discounted gift cards

Though handy, a Costco membership isn't the only way to get discounted gift cards. You could also get a Sam's Club membership to buy gift cards!

Alright, that's half a joke -- it's true, but you don't really need a membership to anywhere special to get gift cards at a discount. You can find a number of third-party sites that sell gift certificates and cards for less than face value. Some of them are resellers (they buy gift cards at reduced prices from people who just want cash, then resell with a margin), others are using bulk buying or affiliate discounts.

It also pays to check directly with the retailer or restaurant. Many run deals on their gift cards throughout the year, especially around various holidays, offering discounts or bonuses on gift card purchases. Small businesses may also be happy to give you a discount if you're buying in bulk.

Third-party seller considerations

Some credit card issuers consider gift card purchases to be a "cash-equivalent" or "cash-like" transaction. That means it will be treated as a cash advance.

Credit card cash advances don't earn purchase rewards. They also typically have a per-transaction fee of 3% to 5% of the total amount. Additionally, cash advances don't qualify for the interest rate grace period, meaning they start accruing interest right away. That interest rate will likely be higher than your standard purchase APR.

Not every gift card transaction will trigger this kind of response. If you're buying a gift card or two as part of your grocery store visit, for example, it's unlikely to be flagged as a gift card purchase. But it's a lot more likely to get a closer look if you're buying directly from a gift card resale site.

Also, be mindful of how many gift cards you buy with your credit cards. It could be interpreted as manufactured spending (using credit cards to buy cash-like products just to churn rewards) if you buy a lot of gift cards at once.

Read the fine print of your card's terms and conditions to find out how the issuer will treat a gift card purchase. You can reach out to your issuer directly with any questions.