Does Paying in Cash Help You Save Money?
In a primarily cashless society, you probably rarely have cash on you. Now even cash-run events of the past like flea markets and Girl Scout cookie sales have Square readers to take credit cards. Paying with cards is certainly convenient, but is it costing us more?
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“Ten years ago, I would have said absolutely. Today, as more spending becomes digital, there are fewer and fewer ways to save money with cash. Having said that, there still is a place and time for cash,” said Derek Sall, founder of Life and My Finances. Here are the pros and cons of paying with cash, and the areas where you can still save when you do.
Pro: You Can Sometimes Get a Discount for Paying in Cash
In some business models, workers will cut you a deal if you pay them in cash. “Need a photographer? A carpet installer? Need a new roof? There’s often a steep discount — like 10%-25% — if you offer to pay them in cash,” Sall said. Many businesses do this to avoid the fees they have to pay on processing credit card transactions. This fee can be anywhere from 1.95% to 2.5% of every transaction, so business owners prefer to avoid that if possible. If you carry cash, you’ll save a lot when you encounter these types of situations, and the vendor will appreciate it, too.
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Pro: Psychologically, Using Cash Might Help You Save
There might not be an exact dollar amount you’re guaranteed to save, but studies have shown that paying with credit cards is considered a less “painful” transaction, according to Megan Kelly, financial advisor and communications director at GoodCheddar.
“According to some experts, the psychology behind paying with options other than cash is connected to the idea that dematerialized money can be linked to reward and regret emotions which influences spending behavior. As such, the sensory stimuli associated with paying with cash are diminished when using apps, credit cards and other payment alternatives,” Kelly said. This means that paying with cash often means more to people because they can feel it disappear, whereas that’s not felt as profoundly when you swipe with a card.
Pro: No Interest Charges or Annual Fees
Credit cards often come with their own set of charges. When you pay with a credit card, you better be able to pay it off, or you’ll be subject to interest charges and late fees. With cash, you don’t have that same problem. Cash gives you the satisfaction that once you’ve paid for something, it’s paid off. You won’t end up paying 20% interest on it sometime down the line. Using cash also gives you the luxury of not having to pay an annual fee that many credit cards require.
Con: You Can’t Shop Online
This is pretty obvious, but in a world where you can do pretty much all of your shopping online, only carrying cash will cost you. When it comes to travel, for instance, you can’t really plan ahead because you can’t book anything with cash. You’ll always need a card to make a reservation or secure deals online.
Con: You Won’t Receive Any Credit Card Rewards
One major reason why people apply for credit cards is to reap the rewards. Each transaction can mean cash back, airline miles or some other kickback for using the card. If you use cash, you don’t get any reward for doing so (unless you’re at the businesses we mentioned above that offer a discount for using cash). If you primarily rely on cash, you also can’t build credit as easily as someone who regularly uses a credit card.
Con: Easier To Lose
We’ve all been there: You put your hand in your pocket to grab your money, but it’s not there anymore. If you drop $100 on the sidewalk, there’s really no way of getting it back. With a credit card, you can notify your credit card company to shut off your card as soon as you’ve lost it, and most of the time, you won’t lose any money in the process. You can also protect yourself from fraud by reporting any charges you didn’t make. If someone steals your cash, you can’t tell your bank to reimburse you.
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This article originally appeared on GOBankingRates.com: Does Paying in Cash Help You Save Money?
