Where Do Cash Back Fees Come From?
Credit and debit cards that offer customers the option to receive cash or cash back on purchases are popular among consumers. Access to cash while on the go is convenient however it is not without a cost. Credit card processing fees may accompany transactions where card users opt for cash back on purchases or cash advance from credit card accounts. Fees associated with cash transactions are not only applied toward customer accounts but in some cases merchant accounts as well. Here we look at the cost of cash transactions with credit and debit cards and how you can save money on each.
Credit Card Transactions
When a consumer uses a credit card to pay for a purchase, the transaction is processed as offline transaction and cash-back options are not available. In order to receive cash from your credit card, you would have to process your request at an ATM where a cash advance and possible processing fee apply. For merchants accepting credit cards, the processing fee is usually 2% of the purchase price, regardless of the cash option.
Debit Card Transactions
Debit card transactions occur when a customer is required to enter their Personal Identification Number (PIN) to complete the transaction. Unlike credit cards, a debit card uses money from your checking or savings account versus a revolving credit account. Debit cards may also be used “as” credit if the Visa or MasterCard logo appear on the card. In this situation the purchase is still debited from your checking or savings account, however the transaction is processed using the credit card processing network. PIN numbers are not required for this type of purchase, however the option for cash back is also eliminated. In order to get cash-back on purchases using your debit card, you must process the transaction using the PIN number. When this occurs the merchant pays a much smaller processing fee than that of a credit card transaction, usually a few cents compared to a percentage of the purchase amount.
It is important to understand what fees may be charged and by whom when deciding whether to get cash from a debit or credit card. Using a debit card at an ATM not affiliated with your bank will add processing and convenience fees to the amount withdrawn. On the other hand, getting cash-back on purchases is usually the easiest way to avoid additional fees, however in some cases merchants are tacking on a fee for this option as well. As the rules and regulations continue to change within the credit card processing industry, it is important to remain abreast of changes to avoid unnecessary and often costly fees applied to your account. If a debit card user is unaware of fees posted to their account, it may reduce their checking account balance causing an overdraft which in turn incurs more fees. Carefully read any information or signage provided by the merchant as well as your card agreement to ensure you are not paying processing or other fees that could otherwise be avoided.