For Costco shoppers, you may have heard the news that Costco has replaced American Express with MasterCard and using Capital One as the issuer. The rumour is that the two large publicly traded companies, Costco ($55B market cap) and American Express ($95B market cap), could not come to terms on transactions fees. The official news is that starting January 1, 2015, American Express will no be longer be accepted in Costco stores or gas stations. From this news, it’s probably safe to assume that Costco will start accepting MasterCard on the same day. However, visiting Costco last week, it looks like they have already started to accept MasterCard (at least in St. John’s, NL)!
The Good News
As a once a week Costco shopper, the switch from American Express to MasterCard is welcomed news. I signed up for the Costco American Express card a few years back just for the fact of earning a few cash back dollars on my Costco spending. My rationale was that it was much more efficient than using my debit card and not getting any points for my spending. I’m a big believer in funneling spending through points or cash back credit cards to first obtain some rewards on spending, and second, as a budget and tracking tool.
The Costco American Express offered 1% cash back on spending greater than $3,000 (0.25% up to $1k, 0.50% up to $3k), 2% cash back on gasoline (up to $3k in spending), 3% cash back at restaurants. A decent card, except for the tiers on regular spending. The biggest pitfall however, is the lack of acceptance of American Express due to their higher merchant fees. Around here, when I ask if they accept AMEX, I get more “no” than “yes”. It’s a whole new ball game now that Costco accepts MasterCard.
The Costco MasterCard
Not only does Costco now accept any M/C, they have teamed up with Capital One to offer the “Capital One Platinum Mastercard – Exclusively for Costco Members”. Besides the benefit of only requiring one card in your wallet to shop at Costco (usually require membership card plus a payment card), they offer competitive rewards as well.
- 3% cash back on restaurant purchases;
- 2% cash back on gasoline purchases;
- 0.50% on first $3,000 of other spending, 1% after that (implicit annual fee of $15); and,
- No annual fee (besides annual Costco Membership).
- Price Protection (find a better price within 60 days, and they will refund you the difference up to $100 per item);
- Purchase Assurance (120 days from date of purchase);
- Extended Warranty (doubles manufacturer warranty up to two years);
- Travel Accident Insurance;
- Car Rental Collision/Loss Damage Waiver; and,
- Baggage Delay Insurance.
Although the rewards are very similar to the old AMEX, the biggest benefit of this card is the general acceptance of MasterCard. Before, AMEX holders would carry the Costco AMEX along with another credit card for other stores. Now, Capital One Costco card holders can reduce their card count by one.
For a free (ish) card, I think that this credit card is very competitive in the Canadian credit card landscape, especially the insurance benefits. The downside with this card is the 0.50% tier for the first $3,000 in spending which equates to a $15 annual fee (relative to cards that offer 1% from the first dollar spent).
However, while the rewards are good, there may be better cards out there, especially if you funnel all spending through one credit card.
Best MasterCards for Costco Shoppers
With Costco accepting M/C, regular Costco shoppers can now funnel even more of their spending on a single MasterCard. There are a large number credit cards available to Canadians, but there are only a few that stand out from the pack.
If your monthly credit card spending is not too high and prefer to stick with no annual fee cards, then your best bet is probably either:
- The MBNA Smart Cash Card (full review here ) which will give you 1% general spending and 2% on gas/groceries up to $400/month (Costco spending does not count as groceries); or,
- The new Costco MasterCard; or,
- Possibly a combination of both. You can read my full comparison of free cash back cards here .
If you are a big spender ($3k+/month on a single credit card), then you may want to consider a MasterCard that has an annual fee, but with higher rewards which compensates for the fee. Here are some examples:
- The Capital One Travel Aspire World card (full review here ). This card will give you up to 2% cash back towards any travel (airline/hotel/cruise) and a best-in-class insurance package. While there is an annual fee
of $120 (free secondary cards), their $100 annual bonus credit for card holders reduces the net annual fee to $20.
- The WestJet World Elite MasterCard is quite interesting as well for travelers devoted to flying with WestJet. The annual fee is $99 for the first card, and $49 for a second card which is steep, but can pay for itself. One of the perks that caught my attention is that card holders and their travel companions get the check baggage fee waived for their first checked bag with WestJet. For a round trip, that’s $50 per person, so a family of 4 would save $200 per trip. In addition, the card holder gets a $99 companion ticket annually. In terms of rewards, this card will give you 1.5% return on regular spending and 2% return on WestJet spending.
- The BMO World Elite MasterCard offers 2% cash back towards any travel (airline/hotel/cruise), 4 Priority Pass lounge passes per year, and a comprehensive insurance package. The downside is the $150 annual fee (free additional cards) and all travel needs to be booked through the BMO website (deal breaker for me).
Up until recently, I used three credit cards (see what’s in my wallet ). The MBNA smart cash for groceries, the Costco AMEX for Costco and Costco gasoline, and a grandfathered no annual fee 1.5% return Capital One card for everything else. Now, I will get rid of the AMEX and divert the spending to my remaining two credit cards.
If I was starting over right now, I would get the free MBNA Smart Cash (for high grocery/gas bills consider the Scotia Momentum Infinite for 4% cash back on groceries/gas) for groceries in combination with the Costco MasterCard for Costco shopping, gas and restaurants. If our monthly spending rises, I would consider the 2% return Capital One Travel card, but I’m not there yet as my existing Capital One card gives me a 1.5% return.
What are your thoughts on Costco accepting MasterCard? What will you use as your primary MasterCard for spending at Costco?
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Good analysis. I still like Amex cards because they tend to offer better rewards and perks than MasterCard even if only marginally so. The acceptance is of course the problem which was where them having exclusive rights to Costco helped them be a lot more mainstream.
It’ll be interesting to see if they can continue attracting the average person to their cards now that this partnership is defunct.
I use a combo of the Scotia Momentum Visa Infinite for groceries and gas (4% back) and the Capital One Aspire Travel World MasterCard (2% on everything). I’ll stick with the Cap One Travel card for Costco spending, rather than applying for the Platinum card to simply act as a Costco membership card.
It’s worth noting that the Capital One Platinum MasterCard is offering double cash back for the first three months of card use (they’re accepting applications now but the card isn’t expected to be available until late October). That means 6% back on restaurant purchases and 4% back on gas for the first three months.
@Stephen, thanks! I also like AMEX perks and their value offered is second to none. But as you said, what good is value if acceptance is low.
@Robb, thanks for bringing up the bonus. Do you have trouble getting the full 2% reward on the capital one card? I’ve read that you need to claim either at $150 or $350, or $600+ (but need full points coverage).
After a year at Costco, I don’t think its the great deal people make it up to be. I might pay less per quantity, but I leave having purchased way more than I would and then consuming it anyway (i.e. at Food Basics, I pay $10 for a cheese that I consume within a week; at Costco I pay $15 for twice the quantity… but it last me a week anyway… net result is I pay more at Costco).
And they don’t have everything so I need to go to two location instead of just Food Basics… I was planning to let it expire… now I might renew. I don’t know.
@FT – I’ve recently redeemed points for a hotel stay in Fairmont, B.C. and another stay in Canmore, AB. Each time, I simply asked the front desk agent to split my bill so that one charge was for exactly $150. No problem either time.
Then I used the Purchase Eraser to redeem 15,000 points against the $150 charge. Not exactly “no hassle” rewards, but it did the trick.