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Sometimes it’s worth paying with cash.
More and more retailers are offering a lower price to customers who use cash instead of credit cards to make purchases. This means that in some cases you can save money by choosing paper instead of plastic.
How much?
Typically, discounts on purchases are about 2% to 4%, but the savings can be higher, experts say.
The share of discounted cash payments is still small – in fact, it will only be about 3% of all cash payments in 2022, according to the Federal Reserve Bank of Atlanta.
However, that share is up more than 60% from 2015, when 1.8% of all cash transactions had a discount, Atlanta Fed data shows. While cash incentives are not yet the norm, they are likely to become more widespread, experts say.
Other companies now charge a surcharge when customers use credit cards to make purchases. In such cases, paying with cash would also bring savings.
According to a recent LendingTree survey, nearly 7 in 10 cardholders said a company charged them additional fees for paying with a credit card.
The trend comes as consumers have increasingly moved away from using cash for purchases: According to the Federal Reserve, consumers made 18% of their payments with cash in 2022, up from 31% in 2016. At the same time, the share of credit cards increased from 18% to 31% during this period.
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“Sometimes it can make sense to just pay cash,” said Matt Schulz, chief credit analyst at LendingTree.
This could also be the case when credit card rewards are taken into account, said Schulz. For example, the highest general cash back yield on most credit cards is 2% — a percentage that is often exceeded by cash discounts, he said.
“If the merchant sets a discount high enough, you may end up paying less if you use cash, even if you have the best rewards card in the world,” said Adam Rust, director of financial services at Consumer Federation of America. a consumer protection group.
Why Companies Give Cash Incentives
Companies that offer cash payment perks typically do so to reduce the cost of credit card transactions.
According to the National Retail Federation, credit card companies like Visa and Mastercard generally charge merchants 2% to 4% for each transaction. These swipe fees are the second-highest cost for most companies after labor costs, the trade group said.
“The merchant looks at your dollar and ends up getting 98 cents because you chose to use a card,” Rust said.
Companies can save money in two ways: offering a discount on cash purchases (avoiding card fees) or charging a surcharge on credit card transactions to offset these fees.
In any case, such practices can result in lower prices for cash users.
However, surcharges are not legal in all states.
According to the North Carolina Restaurant and Lodging Association, as of May 2023, Connecticut and Massachusetts had banned the imposition of surcharges, while Colorado and Oklahoma capped the maximum surcharge at 2%.
Visa also capped surcharges at 3% in April 2023, up from 4% previously, the trade group said.
“It’s really important to understand what the cost of this surcharge will be, if there is one, before you start purchasing,” Schulz said.
When to pay with cash?
According to research by Joanna Stavins, a senior economist and policy advisor at the Federal Reserve Bank of Boston, consumers are often influenced by cash incentives and even switch “significantly” to cash payments, “particularly due to the cash discounts offered.”
When a cash discount is offered, the likelihood that a consumer who prefers cashless payments will choose to pay with cash instead increases by 19.2%, Stavins wrote in a 2018 paper. This research controls for transaction value and the Dealer type.
Additionally, small, independent businesses are more likely to offer cash discounts than large national chains, said Rust of the Consumer Federation of America.
Sometimes it can make sense to simply pay in cash.
Matt Schultz
Chief Credit Analyst at LendingTree
Gas stations have long offered cash incentives to their customers. But more and more are now doing so, and “some major retailers are starting to implement the ability to do this in the future,” said Patrick De Haan, head of petroleum analysis at GasBuddy.
The average cash discount was about 5 to 10 cents per gallon, De Haan said.
More and more stations are now also offering their own payment platforms – such as branded debit and credit cards – which can save you even more than cash, he added.
Discounts are also “very common” when it comes to paying for health care, said Carolyn McClanahan, a certified financial planner and physician based in Jacksonville, Florida.
McClanahan is also a member of the CNBC Financial Advisor Council.
Some large expenses — like tax bills and college tuition — are also generally best paid with cash, Schulz said. The IRS and many universities pass payment processing costs on to the consumer. (In these cases, that might mean writing a check.)
“There are certainly major times when you probably shouldn’t use credit cards because of the fees involved,” he said.
Credit cards sometimes have advantages
There are times when credit cards have clear advantages over cash, Rust said.
For example, unlike cash, credit cards offer some protection against fraud and product returns, Schulz said.
For this reason, using a card may make more sense — even if it incurs fees — when consumers are shopping at a particular store for the first time, purchasing something they may want to return in the future, or purchasing something fragile that they have delivered have received, he added.
Additionally, a credit card may be better for those who want to better keep track of their spending or just generally prefer the simplicity and convenience of a card, Schulz said.
However, consumers who struggle to pay their credit card bills in full and on time each month may be better served with a different payment method to avoid rising interest costs, especially as these interest rates are near record highs.
There is also a workaround for cash and credit cards: debit cards. Merchants generally cannot charge a surcharge for debit card transactions.
“Overall, debit cards can be a better and cheaper choice when credit card fees apply,” Schulz said.
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2024-05-26 13:00:01
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