Have you heard of the latest sin tax?
These are charges that businesses can now apply to customers using a credit card to pay for things. Pay in cash or by debit card, and you’re done. Throw your credit card and you could be paying over 1.4%.
The credit card surcharge is charged as a way for businesses to recoup the high fees they pay to card issuers. But credit cards are, quite rightly, the most popular form of payment today. Why wouldn’t stores and restaurants respect their customers’ choice and just treat card processing fees as just another cost of doing business?
Here’s a theory about it – credit cards are easy to pick on as they’re still seen as a risky indulgence, especially compared to more virtuous money.
A recent report from Payments Canada shows just how popular credit cards have become. They represented one in three purchases in 2021, compared to 30% for debit cards, 16% for electronic funds transfers and 10% for cash. Credit card use jumped 33% in 2021, but that’s a lot because people were on the go more after the pandemic shutdowns of 2020.
Credit cards are popular because they offer points that generate cash back or rewards that can be used towards the cost of flights, hotel rooms and more. Credit cards also offer different types of insurance and give you up to a few weeks to pay for your purchase. I suggest paying for credit card purchases as you make them, but you have the freedom to delay if that’s convenient for you.
The downside of credit cards is their quite gross interest rate of 13-20% and more if you don’t pay your balance in full each month. These tariffs are a heavy burden for people who cannot pay their expenses due to misfortune, insufficient income or lack of discipline.
Cash and debit are less likely to be mismanaged as you can only pay for what you have. But credit cards offer a complete package that people obviously appreciate and want to use.
Businesses are under a lot of pressure lately and the fees they pay to process credit card purchases are part of the burden. If you use a credit card in a store or restaurant, you should understand that processing fees are built into the prices just like rent, electricity, heating, labor costs and more.
Overcharging customers who use credit cards seems out of place. It ignores the inflation fatigue that almost everyone feels these days, and it reflects an outdated puritan of credit cards as bad for us. Let the customers be the judge.
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Rob’s Personal Finance Reading List
The BNPL wedding
The New York Times reports how people are using Buy Now, Pay Later services to pay for weddings. Here’s an idea: save up for a wedding and spend what you have. Zero debt. BNPL is like an interest-free loan that you repay over a period of months. Retailers offer it because they know it entices people to spend more.
Fraudulent landlords, sky-high prices and apartment hunting for ages
A young woman from Turkey in Canada explains the hell of trying to find a affordable rental in toronto. His experience included an $800 scam by a fake landlord. Blame it on his desperation to find a place.
7 credit card mistakes made by college students
A very good introduction for students on how to select and manage a first credit card. Not getting a credit card is one of the mistakes, and I agree. For e-commerce and to establish a credit rating, young adults need a credit card. Ideally, with a modest spending limit to start with.
Never freeze milk
Freezing food can help reduce waste, but there are limits. Here is a list of foods, including several dairy products, that you should never freeze as they will not be palatable afterwards.
Q: I’ve heard that there are tax-free savings accounts that hold savings accounts so the interest accrued isn’t taxed. Currently, I have a high interest savings account earning 3.25%. However, interest will be charged at approximately 20%. I’m looking to find a high interest savings account that can be held in a TFSA.
A: Here is a list of alternative banks offering the best savings rates, with TFSA accounts included. A few banks offer 3% for their high-rate savings TFSAs.
Do you have a question for me? Send me. Sorry I can’t answer each one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
A comparison of cash back programs available when shopping online.
The cashless zone
I don’t usually flag books I’m halfway through, but I’ll make an exception for Somnambulism by Dan Chaon. It’s a dark, dystopian story told by a hitman and it’s funny to laugh at times. At Mr. Chaon’s bad will is like a great film noir in novel form.
look at this
Thoughts on why you should keep savingeven with runaway inflation.
In case you missed these Globe and Mail articles on personal finance
- Can 52-year-old Ezra retire early without jeopardizing the lifestyle he and Daphne want in retirement?
- Young Canadians are pessimistic – for good reason
- HSBC sale could force Canadian mortgage buyers to pay more
More Rob Carrick and Financial Hedging
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