Wednesday, March 21, 2018

Credit Card Showdown: Costco Visa vs. Chase Freedom

I love my Chase Freedom Visa credit card. I earn 1% cash back on every purchase and 5% cash back from select merchants that change each quarter. There is no annual fee. And now that Costco takes Visa, I can use it there as well.

But the last time I was at Costco, I noticed a sign advertising a Costco branded credit card. These are the details:

Hmm.. That looks intriguing. I spend a fair amount of money at Costco and my Chase Freedom card only gives me 1% cash back there. I could double that with Costco's card. Four percent back on gas purchases sounds promising, as does 3% on restaurant spending. The base 1% on everything else matches the Freedom card's cash back rate. Perhaps it was worth looking at switching..

The Devil Is In The Details

So I checked out the fine print of Costco's card cash back program. The card is offered through Citibank and the terms can be found here. Here's my comparison, based on information obtained on March 14, 2018.

Annual Fee

Neither card has an annual fee. Winner: Tie

Annual Percentage Rate

The Costco card APR is currently 16.49%. This is determined by adding 11.99% to the Prime Rate. Chase Freedom is the same. Note that your actual rate will be determined by your credit score and may be higher. I don't carry a balance, so this isn't a big deal to me. Winner: Tie

Sign Up Bonus

Costco's card does not offer a signup bonus. Freedom offers a $150 credit after you spend $500 in the first 3 months of getting a card. You can earn another $25 by adding a second user to the card and making a charge with that card within the first three months. Winner: Chase Freedom

Reward Program And Reward Redemption

This gets a little complicated.

For the Freedom card, it's relatively straightforward: 1% cash back on all purchases, with no maximum. For selected categories, you earn 5% cash back on the first $1,500 spent in the quarter. After that, the standard 1% rate applies. You must manually activate your increased cash back bonus each quarter to earn it.

The Costco card has four reward categories:

  • 4% cash back on all gas purchases, including gas purchased at Costco, up to $7,000
  • 3% cash back on restaurant and travel purchases, which includes hotels, airfare, car rentals, etc. Purchases from Costco Travel do qualify.
  • 2% cash back on all Costco purchases.
  • 1% cash back on everything else.
If you read the fine print, you'll discover some important exceptions:

  • Bakeries do not count as restaurants, for some reason. Also, some restaurants inside stores will not count. This is typical and understandable. The main store is not categorized as a restaurant, so you will just earn 1% there. Chase Freedom has the same disclaimer for it's quarterly categories.
  • Not all gas stations qualify for 4% cash back. Costco gas stations do, but gas purchased from other warehouse stores, convenience stores, supermarkets, superstores, and non-Costco warehouse stores do NOT qualify. You only earn 1% cash back at those locations.

Chase Freedom rewards can be redeemed each month. They can be redeemed as a statement credit or used to purchase gift cards from select merchants, such as Amazon. Reward points do not expire.

Costco cash back awards are distributed once per year, at the end of your February billing cycle. You receive a certificate than must be redeemed at Costco in a single transaction. If your reward is more than your purchase, you will receive cash back. The certificate expires on December 31 of the year in which it was awarded.

Winner: Chase Freedom, for many reasons.

The restrictions on the 4% gas station rewards make it more or less useless to me. I do buy gas at Costco when I can, but there is not a location convenient to me. Most of my purchases are at the gas station at my local Safeway, which has the cheapest prices outside of Costco. Per the Costco card restrictions, I would not earn 4% there because it is a supermarket. I'd only earn 1%.

The yearly reward redemption, quite frankly, sucks. I don't want to have to wait a year to redeem my rewards. Furthermore, I don't want a paper certificate that I can only use at Costco. Sure, I shop there a lot, but why is paper even still being used? It's just another thing to keep track of or lose. And yes, I can redeem it for cash, but I resent being forced to go to a particular place to redeem it. Chase Freedom offers me the ability to credit my account monthly, online and at my convenience.

Other Requirements

Your Costco membership fee will be automatically charged to your Costco credit card. Additionally, if you cancel your Costco membership, your credit card may be cancelled as well.

And the overall winner is....

Chase Freedom.

While Costco typically has good deals on most things, this credit card program just doesn't compete with the Chase Freedom program, both in terms of ability to earn rewards and the ability to redeem them. I'm sticking with Chase Freedom.


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