6 Things You Need to Know About Paying With Cash

1. A cashless society? Not so fast.

From PayPal to Bitcoin to Samsung Pay (the newest contender among mobile wallets), advances in payment technology make pocket change look as if it’s headed for the history books. But according to a 2012 study from the Federal Reserve Bank of San Francisco, 40% of an average consumer’s transactions were in cash—more than for debit cards (25%), credit cards (17%), electronic payments (7%) and checks (7%). The number of notes in circulation has grown by about 5% per year since then, says Doug Conover, an author of the study.

2. Currency comes in handy.

Most vending machines don’t take plastic, and cash works best for all small purchases. In the Federal Reserve study, consumers used cash for two-thirds of transactions smaller than $10 and for half of all payments of less than $50. Merchants are legally permitted to refuse plastic for transactions of less than $10, and they may provide a discount to customers who pay with cash. For most people, $50 or so is an adequate amount of cash to keep on hand, says Matt Schulz, senior industry analyst for CreditCards.com.

3. Hamiltons can’t get hacked.

With data breaches of major retailers becoming common, some consumers have turned to cash payments to prevent hackers from obtaining their credit card information. But plastic carries one big benefit that cash doesn’t: If a thief racks up charges on your credit card, you’re protected by the card networks’ zero-liability policies. And banks will most often reimburse you for fraudulent debit card charges.

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4. A cash fix can cost you.

Use an ATM outside your bank’s network and you’ll pay more than $4, on average, in combined fees to the bank and the ATM’s owner, according to a MoneyRates.com survey. Check your bank’s app or Web site to locate in-network ATMs. Or use a checking account that reimburses ATM surcharges (Ally Bank pays back up to $10 a month). A few banks have introduced ATMs from which customers can get cash by arranging a withdrawal on a smartphone app, then using the app to scan a QR code that the ATM displays—no card required.

5. It’s a great budgeting tool.

If you have trouble controlling your spending when you pay with credit cards, then favoring cash or a debit card is best for your finances. With cash, you can spend only what you have, so you may treat your money more carefully if you see real dollars leaving your hands. Divide the cash into envelopes labeled for each category of your monthly budget—or at least for discretionary purchases such as eating out and shopping. Unfortunately, doing that means you won’t be able to use online tools that automatically track each dollar you spend. But with mobile apps such as GoodBudget and Mvelopes (both are available for Apple and Android devices), you can create virtual envelopes and connect to your bank account to see where the money goes.

6. But it won’t help build your credit history.

Consider using a credit card now and then—perhaps for routine purchases, such as gas, that won’t tempt you to overspend. A history of responsible card usage on your credit record can help you get the best terms on a mortgage or other loan. It may even improve your prospects for getting a job or an apartment rental.