Photo credit: © stevendepolo
Gone are the days when cash was king, or at least that is the direction where we were headed until recently. Debit and credit cards offer the convenience of cash with built-in perks such as airline miles, points exchangeable for merchandise, and cash rebates to name a few, all without the bulk of paper stacks or the need to carry heavy coins. But, with the increased costs of fuel negating many profits, as well as the recently enacted credit card reforms leading to an increase in the costs of debit and credit card usage, many believe that that the cashless society will become a thing of the past even before it actually happens. This theory that cash will remain king does have its merits, as banks are now even reinstating fees just to carry a debit card coupled with the increased costs of accepting both debit and credit card transactions for merchants.
Discounts for using cash has already, and is still happening in some places when the price of gas started skyrocketing a couple of years ago with gas stations setting lower prices for cash transactions. But in such examples, the cost savings for consumers really didn’t make too much sense, Say for example that the average cost of regular unleaded gasoline is $4.00 a gallon (simply to make the calculations easier) and operators are willing to give a $.10 discount per gallon for cash customers, which equates to a 2.5% savings. Sounds pretty good unless you would normally use a credit card which pays back 5%. That 2.5% might still sound pretty good if you hardly purchase gas, but if you are a frequently filling up, a difference of 2.5% can be pretty significant. Then there is the one fact that nobody seems to be mentioning–where to get the cash. In order to receive this discount, you need to pay in cash, which means that you probably will have to increase the number of trips to the ATM, which equates to increased gas consumption. Such added mileage, depending upon how often you hit the bank, or how far out of your way you need to travel, may not only negate the discount in part but perhaps the additional mileage will increase your fuel consumption to a point where it would be cheaper to pay the full price and not have to add additional trips to the bank.
There is a theory, one that was even suggested in a CNN report, that such discounts may also begin to spread to other retailers as well. That may very well work to help businesses increase profits by cutting down on credit card interchange fees, and even save those who have an aversion to credit some money. Not everyone will benefit, or even want to take part. If you are a participant in an online shopping program or any other rewards program, you will be losing out on those benefits as well. A good number of people use rewards cards knowing that they can earn enough for free airline tickets, concert tickets, hotel stays, etc which would be lost by paying in cash to save money. Maybe the cash savings will be enough to pay for such rewards outright, in which case the effort would be justified. Then again each person would have to sit down and calculate that for themselves before making any decision.
Another key point to consider is the amount of interest you would be losing by keeping cash on hand rather than in high-yielding savings or money market accounts. If the main objective of using cash is to save money, then the discount would have to be higher than the interest rate at which savings is earning combined with cash-back rebates or rewards earned on purchases for this concept to work in favor of the consumer. Some may argue that the lost interest is negligible since there wouldn’t be much time to accumulate before the credit card payment would be due and the low interest rates paid on deposit accounts. But if the priority is to save money, it makes more sense to earn even 1% in interest plus the rebates from the credit card (which can push your total savings to as high as 6% in the best situations) rather than take the cash out to save only 2% (for illustration purposes only).
The idea of government intervention by banning rewards credit cards was even broached recently. Of course, this can all change tomorrow and become a non-issue. But, until it does, one would be wise to examine these cash discounts from all angles before making a decision to make the best use of both their money as well as the rewards from using credit/debit cards.
What’s your take on this issue? Do you see us moving backwards as a society and abandoning the practice of using one form of plastic or another to pay for everyday purchases? Or do you view this as a small bump in the road on the way to a completely cashless society?
About Eric J. Nisall
