The Costco American Express, which we considered among the best gas credit cards for those who fill up at the wholesaler, just got a whole lot less attractive. See, the gas rewards rate isn’t spectacular: 3%, while others give 5%. The real value is that the card gives bonus rewards on Costco gas, which most others don’t, not to mention that Costco only takes American Express. It’s great for Costco-goers, and the retailer offers really cheap gas, so we figured that the American Express Costco compounded discount upon discount. Now, we have to reconsider.
Beginning on August 1st, the rewards rate on restaurants will drop 33% on both the business and personal versions of the credit card. Now, the personal card’s rewards structure will be 3% on gas (up to $3k in purchases a year), 2% on travel and dining, and 1% elsewhere. The business card has the same structure, but gets 4% on gas. According to AmEx spokeswoman Leah Gerstner, the rewards program on the no-fee cards became prohibitively costly. She noted that despite the change, the cards are still counted among the most generous.
The reason to get the card is unchanged: if you fill up on Costco gas frequently (which can save as much as 20 cents per gallon), the True Earnings is the only card that will give bonus gas when you use Costco’s gas station. Its gas rewards rate is unchanged at 3%, up to $3,000 a year (~60 gallons a month), so if you wanted the Costco AmEx because it gave rewards on the gas you bought, your reasoning shouldn’t change.
However, if you aren’t sold on the gas, we’d recommend you think about another everyday value card.
Why the Blue Cash kicks the Costco American Express’ butt
The American Express Blue Cash has a lot going for it: it gives a whopping 6% on groceries, plus 3% on gas and department stores, and 1% elsewhere. It also has no cap on rewards and no spending threshold, so the rewards rate you see is the rewards rate you get. It has an annual fee of $75, offset in the first year by $100 cash back, but we think the rewards rate is well worth the fee. Plus, you get straight up cash back: you can get checks in increments as low as $25. It’s a great gas credit card and a great general spending card.
The AmEx Costco has a few things going against it: its rewards program doesn’t stack up all that well, and it maxes out on gas rewards at $90 in rewards each year. It doesn’t have an annual fee per se, but you do need a Costco membership, which costs $50-$100. And you get your rewards in a lump payment once a year, in the form of a Costco voucher that can also be redeemed for cash. It is a cash back credit card, but it gives its rewards in an inconvenient sort of way. Now that the Costco AmEx’s stock has fallen, we’re even more inclined to prefer American Express’ other everyman card.
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The Costco Cash Rebate card is devalued further
The AmEx Costco’s lesser-known cousin, the Costco Cash Rebate card, also took a hit—its spending thresholds rose. Instead of having to spend $5,000 a year before receiving the full rewards rate, customers must now spend $7,500.
| Rewards Rate | Currently | After August 1 |
|---|---|---|
| 0.25% | $0-$2,000 | $0-$2,000 |
| 0.5% | $2,001-$5,000 | $2,001-$7,500 |
| 1.5% | $5,001+ | $7,501+ |
However, the Costco AmEx is generally preferable to the Cash Rebate all around. The Cash Rebate’s advertised 2% rewards rate comes with a number of caveats that chip away at its value and encourage poor spending habits. The spending thresholds are even higher after the announced change. Further, the last 0.5% of the 2% rewards is achieved only if you carry a balance for that period. As a rule of thumb, if you generally don’t pay off your credit card bills month-to-month, you should choose a low APR credit card rather than a high-interest rewards credit card. The interest you’ll pay will just cancel out your rewards. However, if you do opt for the Costco card, you can maximize your rewards by carrying a very small balance. The 0.5% reward bump is binary; no matter how small the debt you incur, you’ll still qualify.
The Costco Cash Rebate doesn’t give bonus rewards, and just offers its base jump-through-hoops-to-get-2% rewards rate. It suffers in comparison to the Costco True Earnings, which has no spending threshold and privileges restaurant and gas spending. Three cash back credit cards give an unqualified 2% back: the Capital One Venture, the Discover More and the Fidelity AmEx (which requires a Fidelity investment account). Many, many others give flat rates of 1.25% or higher, or give up to 5% back in bonus categories. The Costco Cash Rebate’s program wasn’t all that desirable before and is even shabbier after the change.
Are rewards reductions becoming a trend?
Ron Leiber of The New York Times bemoans the cutbacks in yet another rewards program, citing the death of the Charles Schwab Visa’s 2% rewards rate. But rewards promotions are reaching a fever pitch as banks vie for high-spend, low-risk cardholders. We’ve written extensively about the British Airways card and the Capital One Venture’s 100,000-mile signup bonuses, and AmEx recently made its Blue Cash card more accessible to the everyman by doing away with spending thresholds. Although the decline of debit rewards is undeniable, credit cards still pay hefty dividends.
If the 1% reduction in restaurant rewards is significant, the Costco AmEx is probably not the best card for you. The Citi Forward offers 5% back on restaurants as well as on bookstores, movies, and music. American Express’ other everyday rewards card, the Blue Cash Preferred, gives 6% on groceries, 3% on gas and department stores, and 1% elsewhere. Finally, a number of gas credit cards give as much as 5% on gas, though most exclude Costco from their bonus rewards.