Heard about the latest sin tax?
It’s a fee that businesses can now apply to customers using a credit card to pay for things. Pay with cash or debit, and you’re good. Sling your credit card and you might pay upwards of 1.4 per cent.
The surcharge on credit cards is billed as a way for businesses to recoup the hefty fees they pay card issuers. But credit cards are, with good reason, the most popular way to pay for purchases today. Why would stores and restaurants not respect their customers’ choice and simply treat card-processing fees as another cost of doing business?
Here’s a theory on that – it’s easy to pick on credit cards because they’re still considered a risky indulgence, especially compared to more virtuous cash.
A recent Payments Canada report documents just how popular credit cards have become. They accounted for one in three purchases in 2021, compared to 30 per cent for debit cards, 16 per cent for electronic funds transfers and 10 per cent for cash. Credit card usage jumped 33 per cent in 2021, but that’s a lot because people were out and about more after 2020 pandemic lockdowns.
Credit cards are popular because they offer points that generate cashback or rewards that can be used toward the cost of flights, hotel rooms and more. Credit cards also offer various types of insurance, and they give you up to a few weeks to pay for your purchase. I suggest paying off credit card purchases as you make them, but you have the freedom to delay if it suits you.
The downside of credit cards is their utterly gross interest rates of 13 to 20 per cent and more if you don’t pay your balance in full every month. These rates are a heavy tax on people who can’t pay for their spending as a result of misfortune, insufficient income or a lack of discipline.
Cash and debit are less likely to be mishandled in that you can only pay what you have. But credit cards offer a complete package that people obviously appreciate and want to use.
Businesses are under a lot of strain lately and the fees they pay to process purchases on credit cards are part of the burden. If you use a credit card in a store or restaurant, you have to understand that processing fees are folded into prices in the same way as rent, electricity, heating, the cost of labour and more.
Surcharging customers who use credit cards seems out of step. It ignores the inflation fatigue almost everyone is feeling these days, and it reflects an outdated puritanical of credit cards as bad for us. Let customers be the judge of that.
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Rob’s personal finance reading list
The BNPL wedding
The New York Times reports on how people are using Buy Now, Pay Later services to pay for weddings. Here’s a thought: save for a wedding and spend what you have. Zero debt. BNPL is like an interest-free loan you pay back over a period of months. Retailers offer it because they know it influences people to spend more.
Fraudulent landlords, sky-high prices and an apartment hunt for the ages
A young woman who came to Canada from Turkey explains the hell of trying to find an affordable rental in Toronto. Her experience included being scammed for $800 by a bogus landlord. Blame it on her desperation to find a place.
Seven credit card mistakes by students
A very good primer for students on how to select and manage a first credit card. Not getting a credit card is listed among the mistakes, and I agree. For e-commerce and to build a credit score, young adults need a credit card. Ideally, with a modest spending limit to start.
Never freeze milk
Freezing food can help reduce waste, but there are limits. Here’s a list of foods, including several dairy products, that you should never freeze because they won’t be palatable afterward.
Ask Rob
Q: I have heard there are tax-free savings accounts that hold savings accounts so any interest accumulated would not be taxed. Presently, I have a high interest savings account paying 3.25 per cent. However, the interest will be taxed at approximately 20 per cent. I am looking to find a high interest savings account that can be held in a TFSA.
A: Here’s a list of alternative banks offering top rates on savings, with TFSA accounts included. A couple of banks offering 3 per cent for their high-rate savings TFSAs.
Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
A comparison of cashback reward programs available when you make online purchases.
The Money-Free Zone
I don’t usually report on books I’m midway through, but I’ll make an exception for Sleepwalk by Dan Chaon. It’s a noirish, dystopic story narrated by a contract killer and it’s laugh out loud funny in parts. Mr. Chaon’s Ill Will is like a great film noir in novel form.
Watch this
Thoughts on why you should keep saving, even with inflation raging.
In case you missed these Globe and Mail personal finance-related stories
- Can Ezra, 52, retire early without jeopardizing the lifestyle he and Daphne want in retirement?
- Young Canadians are pessimistic – for good reason
- HSBC’s sale could leave Canadian mortgage shoppers paying more
More Rob Carrick and money coverage
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Even more coverage from Rob Carrick:
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- ✔️ The housing file: How bad is housing affordability? Even a crash won't help • Sell the family home to lock in profit and then rent? Better not • Why young adults can't afford houses: Hard work got you more in the past than it does now • Five reasons you should not buy a house till you're at least 30 • Now more than ever, owning a house is not a retirement plan
- 📈 Investing: The 2022 ETF buyer's guide: Best Canadian equity funds • The 2022 Globe and Mail digital broker ranking: Does the zero-commission revolution flip the script on who's best? • With bonds sinking, conservative investors are waking up to risks they never saw coming • A five-step plan for dealing with the sad fact that almost every investment is falling lately • The best financial advice in advance of retirement? Work on your marriage • One-year GICs are the best deal in town for safety seekers • What to do if the financial plan you paid thousands for disappoints
- 💰 Your money: Are you prepared for the pandemic wealth boom to blow up in our faces? • This hard-working 24-year-old is nailing it financially. But where’s the happiness? • Who should and shouldn’t worry about the wave of rate increases this year, and what every stressed-out borrower should do right now • Don’t make this potentially costly assumption about the CPP Survivor’s pension
Rob Carrick