The cost difference between paying in cash and paying a convenience fee

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If you have access to online bill payments and a debit or credit card, now you can pay almost all bills and make any purchase without writing a paper check or using cash. But these payment methods are not always free. Some billers and merchants charge a convenience fee if you use your debit or credit card, fees that can add up if you’re not careful.

Read on to learn more about the convenience fees you may encounter when using a card, how much they can cost, and when paying a fee makes more sense than paying with cash.

What is a convenience fee?

A convenience fee is charged by a biller or merchant when you pay by credit or debit card rather than one of a company’s standard forms of payment. A convenience fee can be a flat fee or a percentage of a transaction or purchase.

It is not uncommon for government agencies, utility companies and universities to consider electronic card transactions – debit and credit cards – non-standard forms of payment. Standard forms for these merchants are usually limited to cash and paper checks; some may even accept an ACH transfer from your bank account.

So why are you being charged a convenience fee? Card-accepting companies cannot process such transactions for free. Some merchants consider card processing fees a cost of doing business, while others pass the fees on to consumers who pay by card.

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How much are typical convenience fees? Some examples

The following billers and merchants commonly charge convenience fees for credit and debit card transactions. Here are the convenience fees you may encounter when you pay with a card instead of cash.

Utility

Many utility companies charge a flat fee for credit card payments. For example, the third-party payment processor used by Tampa Electric charges $2.75 (per $1,000 transaction), so Pinellas County, Florida charges a service fee of $3.75 (per $1,000 payment). of $300 or less).

School fees

You can often expect a fee when you use one card to pay tuition at different colleges and universities. Considering the cost of tuition, this can get expensive if the fee is based on a percentage.

For example, the University of Central Florida charges a 2% fee. The school’s $6,368 in-state annual tuition will cost you another $127 if you have to use your credit card to pay for tuition.

IRS

To pay your tax bill with a credit card, you’ll need to use an IRS-approved third-party payment processor. A debit card transaction will cost you a maximum of $2.20. But a credit card transaction can cost up to 1.98% of the payment amount, or $1.98 more for every $100 you owe.

Mortgage services

Most mortgage companies won’t let you pay your mortgage with a credit card. However, a third-party payment processor like Plastiq will charge your credit card and then write a check to your mortgage servicer on your behalf. It will cost you a convenience fee of 2.9%, or $2.90 per $100. That’s a $29 fee for a $1,000 mortgage payment.

Peer-to-peer payment app

To use a credit card to send $100 to someone through Venmo, you’ll pay a 3% fee. It will cost you 2.90% plus a flat 30 cent fee via PayPal.

Paying Cash vs Paying a Convenience Fee: Things to Consider

It makes financial sense to avoid paying convenience fees whenever possible. However, avoiding this fee isn’t always convenient or cost-effective, especially if you can’t make payments using online bill pay or paper checks. It may leave cash as the only fee-free payment option.

Let’s say you can only pay your water bill with cash or a credit card. Paying with cash can mean driving to the utility company to pay in person. Therefore, the time and gas saved by paying online can make paying with a credit card flat rate a better financial choice. If you can’t pay in person before the due date, paying a convenience fee to avoid an even higher late payment fee and keeping your account in good standing is your best bet.

Take away

Convenience fees are sometimes necessary and occasionally worth it, but they shouldn’t become a part of your daily bill-paying practice. Habitually using your credit card to pay bills can run you into debt if you can’t afford to pay the balance in full each month. The interest on those payments and convenience fees can add up quickly. Even if you use a rewards card, any rewards you earn probably won’t offset the convenience fee.

Determine how to make fee-free payments for each bill, and use these payment methods as often as possible.

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