Paying with cash is now better than credit card | Wilnesh News

Sometimes, it pays to pay in cash.

More merchants are offering lower prices to customers who buy with cash instead of credit cards. This means you may save money by choosing paper over plastic in some cases.

How much is it?

Typically, cash discounts on purchases are about 2% to 4%, but savings can be higher, experts say.

Data from the Federal Reserve Bank of Atlanta shows that the share of discounted cash payments remains low, in fact, accounting for only about 3% of all cash payments by 2022.

However, the rate is up more than 60% from 2015, when 1.8% of all cash transactions were discounted, Atlanta Fed data shows. Experts say that while cash incentives are not yet the norm, they may become more common.

Meanwhile, other businesses charge a surcharge when customers use their credit cards to make purchases. In this case, it is also possible to pay in cash Yield savings.

Nearly seven out of 10 cardholders said that companies have charge them extra A recent LendingTree survey revealed the use of credit card payments.

This trend comes as consumers steadily grow move away Use cash for purchases: According to the Federal Reserve, the proportion of consumers paying with cash will be 18% by 2022, down from 31% in 2016. Meanwhile, the share of credit cards grew from 18% to 31% during this period.

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“There are times when it makes sense to just pay cash,” said Matt Schulz, chief credit analyst at LendingTree.

Schultz said this may be the case even when credit card rewards are taken into account. For example, the maximum general cash back return rate on most credit cards is 2 percent, and cash discounts often exceed that percentage, he said.

“If merchants set discounts high enough, even if you have the best rewards card in the world, you may still end up paying less if you use cash,” said Adam Rust, director of financial services at the Consumer Federation of America. Consumer advocacy group.

Generally speaking, credit card processing companies such as Visa and Mastercard Charge merchant Fees range from 2% to 4% per transaction, according to the National Retail Federation. For most businesses, these card swipe fees are the second-highest cost after labor costs, the trade group said.

“The merchant will look at your dollar and end up getting 98 cents because you chose to use your card,” Rust said.

Businesses can save money in two ways: offer discounts on cash purchases (thus avoiding these card fees), or charge a surcharge on credit card transactions to offset these fees.

Regardless, this approach will likely result in lower prices for cash users.

Additional fee illegal But in all states.

As of May 2023, Connecticut and Massachusetts have banned surcharges, while Colorado and Oklahoma cap surcharges at 2%, according to the North Carolina Restaurant and Lodging Association.

Visa also Surcharge cap The trade group said the tax rate will drop from 4% to 3% by April 2023.

“Before you buy, it’s important to understand what the surcharges will cost, if any,” Schultz said.

When cash discounts are offered, the odds increased by 19.2% Stavins wrote in a 2018 paper that consumers who prefer cashless payments will choose to pay with cash. This study controlled for transaction value and merchant type.

Additionally, Small independent businesses are more likely to offer cash discounts than large national chains, said Rust of the Consumer Federation of America.

Gas stations have long offered cash rewards to customers. But more and more people are doing it now, and “some major retailers are starting to implement the ability to do that in the future,” said Patrick De Haan, director of petroleum analytics at GasBuddy.

De Haan said the average cash discount is about 5 cents to 10 cents per gallon.

Meanwhile, more stations are also offering their own payment platforms – such as branded debit and credit cards – which offer greater savings 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 in Jacksonville, Florida.

McClanahan is also a member of CNBC’s Financial Advisory Board.

Some big expenses — like tax bills and college tuition — are also often best done with cash, Schultz said. The IRS and many colleges pass payment processing costs onto consumers. (In these cases, that might mean writing a check.)

“In some cases, you probably shouldn’t use a credit card because of the fees involved,” he said.

Sometimes credit cards have clear advantages over cash, Rust said.

For example, unlike cash, credit cards come with certain protections related to fraud and product returns, Schultz said.

That’s why using a card may make more sense — even if there’s a fee involved — if the consumer is a first-time shopper at a particular store, is purchasing something they may want to return in the future, or if purchasing a fragile item that they’ve already had delivered. he added.

Additionally, credit cards may be better for people who want to track their spending more closely or who just generally like the ease and convenience of using a card, Schultz said.

However, consumers who pay off their credit card bills on time and in full each month may be better served with alternative payment options to avoid increased interest charges, especially at these interest rates Both are close to record highs.

There’s a solution for cash and credit cards: debit cards. Businesses are common Unable to add Surcharge for debit card transactions.

“Overall, debit cards are probably the better and cheaper option when it comes to credit card surcharges,” Schultz said.