Why a Costco Membership Is a Better Investment Than a 5% APY CD

Certificates of deposit (CDs) are red hot, with the best accounts offering interest rates around 5.00%. Opening one seems like an easy way to snap up a few hundred dollars, but it might not be the best financial move for you right now.

If you live within a reasonable drive of a Costco warehouse or you're just curious about its exclusive perks, you might be better off spending a portion of your cash on an Executive membership. Shop there often enough and you could find the savings way more lucrative than the earnings on a top CD. Here's why.

Losing access vs. gaining access

The best CDs right now have interest rates around 5.00% with a 1-year term. This could earn you quite a bit, but only if you're able to leave your money alone for a whole year. If you can't, you could face a penalty equal to several months of interest payments for withdrawing your CD funds early.

A Costco membership, on the other hand, ties up less of your dollars -- just $120 per year for the Executive membership -- and it unlocks the ability to shop online and in its warehouses. You also get member-exclusive perks, like:

• Costco Travel
• 2% back on eligible purchases (up to $1,000)
• Discounts on many popular goods and services
• Free shipping on online orders
• Free 90-day technical support on electronics and appliances

Plus, you get access to its food court for those nights when you really don't feel like making dinner.

Earnings vs. savings

A 5.00% APY CD could earn you nearly $256 on a $5,000 initial deposit in a year. That's not a bad profit for doing basically nothing. But Costco Executive members who do the bulk of their shopping here could save even more in a year than they could earn with a top CD. 

If you spend $20,000 per year at Costco -- about $1,667 per month -- you could walk away with $400 in annual rewards. Even after subtracting the $120 you spent on the membership fee, you still come out ahead compared to the CD.

This doesn't include the money you save by buying in bulk at Costco compared to other stores that charge higher prices for the same goods and services. These savings are more difficult to calculate because they depend so much on your spending habits. 

One study found that shopping at wholesalers like Costco could save you 33% on your grocery costs in a year. The average American family spent about $5,988 on groceries in 2023. Based on this, a 33% savings would keep an extra $1,976 in your pocket.

Why not do both?

If you've got the cash, there's nothing stopping you from getting a Costco membership to reap the savings it offers while putting the rest of your cash in a CD. Or if you prefer to keep your money accessible, you might try opening a high-yield savings account instead.

But if you can only choose one, the Costco membership is probably the way to go. It'll tie up a lot less of your cash and the savings it offers could easily exceed what you could make in a year with a CD or a savings account.