There are several reasons for paying with plastic, such as the convenience factor and the possibility of rewards. However, credit card convenience fees may apply to certain types of purchases, and they may reduce your rewards or even wipe them out entirely.
Before you pay a credit card convenience fee, evaluate if the extra cost is worth it and if paying with cash or a debit card can make you feel better. Read on to find out what a credit card convenience fee is, how much it usually is, and how to decide if it’s worth it.
What is a convenience fee?
A convenience fee is a fee charged for the privilege of paying for a product or service using an alternative payment method, such as a credit card. The average convenience fee ranges from 1 to 3.5%, but it can also be fixed.
You will usually be charged a convenience fee, such as paying utility bills such as an electricity or gas bill. In many cases, you can pay by credit card online, but you will be charged a flat fee of $1 to $3.50 per payment.
On the other hand, you can pay utility bills without fees if you choose a linked bank account or use your debit card instead.
Convenience fee versus copay
While credit card convenience fees are added to completing a transaction remotely—for example, over the web, via a mobile app, or over the phone—surcharges are fees that merchants charge for using a credit card rather than cash during a personal transaction.
Most issuers discourage the use of surcharges, and Visa even requires merchants to notify it at least 30 days before a merchant intends to charge a surcharge for selling a credit card. In addition, Visa requires merchants to post signage at the point of sale that discloses the surcharge policy.
Some states also have laws that prohibit or restrict the use of credit card surcharges. However, merchants may offer discounts for customers who pay with cash instead of a card. For example, a business might apply a fixed 10 cent discount for cash payments but not offer a discount for card payments.
Credit Card Network Payment Guide
Visa, Mastercard, and American Express have guidelines that merchants must follow if they want to process card transactions on their networks. The rules that card networks impose include, but are not limited to:
American Express
When it comes to payments made with American Express, the convenience fee must be disclosed to the customer. The fee must be the same for all forms of payment in this channel (phone, web, or mail) and may be charged for personal payments, recurring payments, and installments (such as subscriptions, utility bills, and insurance premiums). ).
Mastercard
When payment is made with Mastercard, the credit card convenience fee must be disclosed to the customer as a payment channel fee. Convenience fees may apply for in-person, phone, internet, kiosk, or postal payments, but the merchant must contact Mastercard of their intention to charge at least 30 days before the payment begins. The convenience fee cannot be higher than other card payments.
Visa
When it comes to shopping with a Visa credit card, convenience fees cannot be charged for in-person transactions unless specific requirements are met. The convenience fee must be disclosed prior to the completion of the transaction and must be a flat fee or a fixed fee that is not related to the amount of the payment.
Various types of credit card processing fees
Exchange fee
An exchange fee is a fee that businesses pay to card issuers when a customer uses a credit or debit card in their store. When a merchant processes a customer’s transaction, an additional percentage of that sale is attached and paid by the merchant to the card issuer.
Evaluation fee
Not to be confused with interbank fees that are charged for a credit card transaction, appraisal fees are charged on the seller’s total monthly sales made with each issuer. At the end of each month, the merchant pays the issuer a percentage of that month’s sales for each brand of credit card.
Payment Processing Fees
Merchants and businesses typically charge a payment processing fee when customers pay bills with a credit card, such as utilities, rent, training, and more, online through a payment portal. These processing fees are usually added to the amount processed and are paid by the customer on top of the invoice.
When is paying for convenience justified?
While paying for the convenience of a credit card may seem like a waste of money, it can definitely be worth it under the right circumstances. The key to figuring out if the convenience fee is worth it is doing some basic math and knowing exactly how your credit card rewards program works.
As an example, imagine your credit card offers a 2% cash back on every purchase you make. You go to pay your $250 electricity bill and notice that your utility company charges a flat fee of $1.25 for payments made with a credit card.
In this case, you can pay $251.25 ($250 for electricity plus $1.25 for convenience) with your credit card and earn $5 in cash rewards. This makes the convenience fee worthwhile in the long run.
Another case where paying for the convenience of a credit card might be justified is when you want to get a generous credit card signup bonus. If you need to pay utilities and other bills, you must meet the minimum spending threshold for the bonus of $500 or more, the convenience fee and additional fees are usually a drop in the bucket and worth paying.
How to Avoid Credit Card Convenience Fees
If you want to avoid credit card convenience fees, you need to pay for invoices that require them using another form of payment. Instead of paying these bills with a credit card, you can:
- Link your bank account using your account number and routing number to select ACH (Automated Clearing House) transactions. Because this is a payment directly from your bank account, no credit card payments are processed, so there are no fees.
- Try to pay in person if possible.
- Pay your bills by regular mail with a paper check.
You can also simply avoid merchants and businesses that charge processing fees in some cases, although this is not always possible.
bottom line
The fees charged for online credit card transactions are not new, and you’ve likely seen them when paying your utility bills or renting online. While convenience fees when processing credit card payments online are common, you can avoid them by directly linking your bank account for payments or by paying with a debit card. You can also pay some bills in person or send a check by regular mail.
However, in some cases it may make sense to pay a credit card convenience fee so that you can pay with a credit card. This is usually only true if the reward you earn is more than the value of the commission, so make sure you do the math before you pay.
Editorial disclaimer
The editorial content on this page is based solely on the objective judgment of our contributors and is not based on advertising. It was not provided or ordered by credit card issuers. However, we may receive compensation when you click on links to our partners’ products.
