It’s no secret that sometimes it pays to pay with cash. More and more merchants are offering discounts to customers who choose to pay with paper instead of plastic. Typically, cash discounts run about 2% to 4% on purchases, though savings can be even higher in some cases. While only about 3% of all cash payments had a discount in 2022, that number has increased significantly from 2015, indicating a growing trend. Experts predict that cash incentives are likely to continue becoming more widespread as time goes on.
On the flip side, many businesses are adding surcharges when customers use credit cards for purchases. Nearly 7 in 10 cardholders report being charged extra for paying with a credit card. This trend is likely a result of the fees that merchants incur from credit card transactions. Credit card processing companies like Visa and Mastercard often charge merchants 2% to 4% for each transaction, making it more costly for businesses to accept credit cards. As a result, offering discounts for cash purchases or adding surcharges for credit card transactions is a way for businesses to offset these fees.
According to financial experts, there are times when it makes more sense to pay with cash rather than credit cards. Even after considering credit card rewards, using cash may still result in greater savings. With the average general cash-back return on credit cards being 2%, cash discounts may exceed this percentage, making cash the more cost-effective option. Additionally, research shows that consumers are often swayed by cash incentives, with many more likely to switch to cash payments if discounts are offered.
There are specific instances where paying with cash is highly recommended. For example, big-ticket items like tax bills and college tuition are generally best paid for with cash. Many businesses pass on payment-processing costs to consumers in these cases, making cash the more affordable option. Gas stations have long offered cash incentives to customers, and some major retailers are beginning to follow suit. Discounts for health care payments and other high-cost expenses are also prevalent in various industries.
While cash may offer greater savings in many cases, credit cards also have their advantages. Credit cards provide protections for fraud and product returns that cash does not. They can also be more convenient for tracking spending and may be preferred for certain purchases, such as items that may need to be returned in the future or fragile items that are being delivered. However, consumers who struggle to pay off their credit card bills in full each month may want to consider using another payment method to avoid high interest charges.
Paying with cash can lead to significant savings, especially as more businesses offer discounts for cash purchases. While credit cards have their advantages, consumers should weigh the costs and benefits of each payment method to make an informed decision based on their financial situation and individual needs.