In an age where it has become easier to pay for goods and services with debit and credit cards, it can be difficult to remember the good old days when cash was king.

But there’s a good reason why opting for coins and notes over online payments is still popular.

Recently, Fiona Edmunds, a mother-of-three from Brisbane, revealed how physical money will retain its value.

In a Facebook post that has quickly made the rounds on social media, Ms Edmunds illustrated the hidden cost of using a bank card.

A mum-of-three from Brisbane gave an elegantly simple explanation for why paying with cash is better than using a credit card. Credit: Shutterstock.

'I have a $50 banknote in my pocket and I go to a restaurant and pay for dinner with it,' she explains.

'The restaurant owner then uses the bill to pay for their laundry. The laundry owner then uses the bill to pay the barber. After an unlimited number of payments, it will still remain at a $50 value which has fulfilled its purpose to everyone who used it for payment.'

However, if you pay with a card, the amount paid will gradually diminish in value because part of it will be eaten away by fees.

'BUT if I come to a restaurant and pay digitally via card, the bank fees for my payment charged to the seller could be up to 3 per cent or $1.50,' she continued.

Ms Edmunds claimed that up to 3 per cent of payment can be charged to the seller by banks, and added that this percentage will be imposed on every other transaction paid with the same card.

'Therefore after 30 transactions, the initial $50 will exist at only $5 and the remaining $45 has become the property of the bank,' she explains.

It should be noted, however, that this simplified example does not give the full picture, and the fees charged by banks for credit card transactions vary widely.

Regardless, the principle that Ms Edmunds is getting at is accurate: In the long run, banks and credit card companies will generally take a portion of your money every time you make a transaction that inevitably becomes theirs over time.

'Use it or lose it folks... cash is king,' she finished.

Meanwhile, the Reserve Bank of Australia confirmed that while there's truth to what the mum claimed, the average cost for certain businesses to use banks' or credit card companies' payment services has decreased.

'However, consumers are making more payments with cards than ever before, which is raising total payment costs for merchants,' the RBA remarked.

It's also worth noting that smaller businesses face considerably higher card payment costs for each and every transaction than larger businesses.

This means that in some cases, merchants may pass on a surcharge to the customer in order to cover the cost of payment.

Here are a few examples of the fees a merchant might pay depending on the type of card they accept:

Eftpos: Less than 0.5 per cent
Visa and Mastercard debit: Between 0.5-1 per cent
Visa and Mastercard credit: Between 1-1.5 per cent
American Express: Between 1.5-2 per cent

Key Takeaways

• Using cash over cards is more beneficial to you and the community because banks and credit card companies will take a cut from each transaction
• Businesses, especially smaller businesses, suffer more from high card payment costs, with merchants paying up to 3 per cent in fees
• Businesses are allowed to pass on surcharges to customers to cover merchant fees, but the amount cannot exceed the fee amount
• So, even though cash might be inconvenient or old-fashioned, it's a better option for both you and local businesses in terms of maintaining the value of your money

Given this information, members, it's no wonder why many recommend starting to pay for products in cash if you can. By paying with cash, you can avoid unnecessary surcharges, and keep more money in your own pocket!

What are your thoughts, folks? Do you regularly pay for your everyday purchases with cash?

 

[Dougal]

I can't understand what the fuss is about; I have 5 credit cards which I've used
for the past 40 years or so and never paid 1 cent in fees to the merchants.

 

[Observer]

A way to avoid these fees is by using cash or a debit card instead of a credit card. This way, you're only spending what you have in your account and you're not incurring any interest charges.
Another way to avoid these fees is by checking your credit card status online and looking for cards that don't charge additional fees for card payments. Some credit card companies offer special rewards or cashback for using their card at certain merchants.
You can also ask the merchant if they charge extra fees for card payments and if they offer any discounts or deals for cash or debit card payments.

There are plenty of places now that are charging you when you are using a debit card, and it is your money, not the banks when you use a credit card. Most annoying for the retailer to charge a transaction fee on your debit card. Now I either pay cash or avoid that retailer and shop elsewhere.