3 Times It's Cheaper to Use Cash Instead of a Credit Card

I'll come out and say it: most of the time, a credit card is the best method of payment. Most credit cards have 0% fraud liability protection, which protects you against unauthorized transactions, along with a slew of other shopping and travel protections, like extended warranties and travel insurance. Many of the best credit cards earn rewards or cash back and may even come with a welcome bonus when you hit a certain spend threshold within a specific timeframe.

But credit cards aren't risk-free, nor are they always the most advisable method of payment. Credit cards might trigger processing fees, which could add 2% to 3% of your purchase amount as a surcharge. And while paying your credit cards in full and on time each month guarantees you won't pay interest, carrying a balance activates your card's annual percentage rate (APR).

For these reasons, it might be best to carry a little cash along with your favorite cash back credit card. More specifically, these three scenarios could make paying with cash cheaper than charging purchases to your credit card.

1. Gas purchases

Gas stations will often charge slightly more per gallon when you use a credit card versus cash. This is because the gas station is adding the credit card's transaction fee into the per-gallon cost. According to the Association for Convenience and Petroleum Retailing (NACS), that transaction fee could be between 1.5% and 4% of the final amount. So if gas has a base cost of $4.00 per gallon in your area, you could end up paying $0.06 to $0.16 more per gallon.

While some credit cards have bonus rates for gas purchases, few will earn more than 4% consistently. In this case, it would be cheaper over the long run to use cash to cover your gas purchases.

2. Local business transactions

Maybe this has happened to you: You go into a local store, say a home decor shop, only to see a sign that says "2.5% fee applied to credit card transactions." Or maybe you go into a gas station to buy a drink and see that transactions under a certain dollar amount (like $5) will incur a "swipe fee."

In these situations, businesses are protecting themselves from losing money. Since they have to pay credit card fees on every transaction, they don't want to lose money for small purchases. If small businesses near you try to discourage credit cards with these added fees, it would obviously be cheaper to bring cash instead.

3. Budgeting your expenses

Credit cards can make it easy to spend money, especially if you have high credit limits. In fact, if you're afraid a credit card will tempt you to overspend, or spend money you don't have, it might be better to pay in cash.

For example, take Costco. As a Costco member, I can vouch for the many items I've purchased impulsively. In fact, when I first became a member, I went in for seltzer and CLIF Bars and came out with an air fryer and some socks. Because of how easy it is to spend money at Costco, bringing cash could add some necessary guardrails to your budget.

In regards to budgeting, paying with cash does have this disadvantage: You have to track your transactions carefully. In contrast, credit cards give you a running list of recent transactions, which when synchronized with a budgeting app, can be categorized for you. It's more convenient and ensures you don't miss documenting a single purchase.

All in all, cash can come in handy for certain purchases, as well as help you avoid overspending. For rewards and extra protection, however, credit cards are still king. You might want to keep a little cash on hand to avoid the processing fees, but for your general spending, I would still recommend keeping a few great credit cards in your wallet.