Sometimes, it pays to pay with cash.
More merchants are offering a lower price to customers who use cash rather than credit card for a purchase. That means opting for paper over plastic may save you money in some cases.
Just how much?
Typically, cash discounts run about 2% to 4% on purchases, though savings can be higher, experts said.
The share of cash payments with a discount is still low — in fact, only about 3% of all cash payments in 2022, according to data from 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 not yet the norm, cash incentives are likely to become more widespread, experts said.
Meanwhile, other businesses add a surcharge when customers use credit cards for purchases. In such cases, paying with cash would also yield savings.
Nearly 7 in 10 cardholders said a business has charged them extra for paying with a credit card, according to a recent LendingTree survey.
The trend comes as consumers have steadily shifted away from using cash for purchases: Consumers made 18% of payments with cash in 2022, down from 31% in 2016, according to the Federal Reserve. Meanwhile, credit cards’ share grew to 31% from 18% during that period.
“Sometimes, it can make sense to just go ahead and pay cash,” said Matt Schulz, chief credit analyst at LendingTree.
That may be the case even after accounting for credit card rewards, Schulz said. The largest general cash-back return on most credit cards is 2%, for example — a percentage often exceeded by cash discounts, he said.
“If the merchant establishes a discount that’s 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, a consumer advocacy group.
Why businesses give cash incentives
Businesses that offer a break on cash purchases generally do so to reduce costs they incur for credit card transactions.
Credit card-processing companies like Visa and Mastercard generally charge merchants 2% to 4% for each transaction, according to the National Retail Federation. These swipe fees are the second-highest cost for most businesses, behind labor costs, the trade group said.
“The merchant is looking at your dollar and getting 98 cents in the end because you’ve chosen to use a card,” Rust said.
