What Are Credit Card Convenience Fees?

A convenience fee is added to a transaction when you choose to use a nonstandard form of payment. A merchant might charge you for paying a bill over the phone by credit card instead of by mail.

“Merchants or retailers charge a convenience fee for the right to pay for something using a payment method that is not standard for the merchant,” says John Schmoll, founder of personal finance site Frugal Rules. “It’s commonly found with online, over-the-phone or in-app purchases.”

Regardless, it pays to know when convenience fees apply, how to avoid them and when they might be worthwhile.

[Read: Best Rewards Credit Cards.]

What Is a Convenience Fee?

A merchant charges you a convenience fee when you do not use a standard form of payment, which includes cash, check or automated clearing house transfer. A credit card payment is considered nonstandard and subject to a convenience fee.

Businesses charge convenience fees to recoup some of their processing costs when customers pay by credit card. A merchant fee of about 2% or more per card transaction may apply, depending on the payment network, according to the credit bureau Experian.

“There is a cost to any merchant that accepts a credit card,” says Jim Butkiewicz, professor of economics at the University of Delaware.

You can also expect to be charged a convenience fee for utilities, taxes, tuition bills and peer-to-peer payments through apps such as Venmo.

Credit Card Convenience Fees vs. Surcharges

Credit card surcharges and convenience fees are similar, but they are not the same. A surcharge can be added in any situation for the privilege of using a credit card, but a convenience fee can be charged specifically for using a nonstandard payment method.

Surcharges are intended to offset the expense of processing card transactions. Most states do not restrict surcharges.

The surcharge might be as much as 4% of the transaction, and the merchant must tell you about the charge. If you decide not to use plastic for your purchase, a merchant is permitted to offer you a cash discount.

Card Network Guidelines for Convenience Fees

Convenience fees fall under a merchant’s agreement with a card network. Each network has rules about when and how a merchant can assess a convenience fee. In general, merchants have to tell customers about the fee before the transaction and then list the fee clearly on a receipt.

Card Network Guidelines for Convenience Fees
American Express
Utilities and merchants in the government and higher-education sectors can charge convenience fees for qualified transactions. The convenience fee must be clearly disclosed, and the customer must have a chance to cancel the transaction to avoid the fee.
Discover
Retailers can charge Discover cardholders a convenience fee as long as American Express, Mastercard or Visa cardholders pay the same fee.
Mastercard
Pre-certified and educational entities or third-party agents can charge cardholders a convenience fee for using a Mastercard instead of other forms of payment, such as cash, check, ACH transfer or debit.
Visa
The merchant can charge a clearly disclosed flat fee for the convenience of using a Visa card as an alternate form of payment.

How to Avoid Paying a Convenience Fee

You can avoid paying a convenience fee by simply not using a credit card. Instead, you can use a standard payment option, such as cash, check or ACH transfer.

Get in the habit of carrying some cash or checks in your wallet in case you need another payment method.

You may need to choose an alternate payment channel. If a business charges a convenience fee for online or phone payments, make your payments by mail.

Are Credit Card Convenience Fees Worth It?

If you prefer to pay by credit card, you might be willing to pay a convenience fee. Maybe you have funds on the way but don’t have the cash on hand in time to make a monthly payment. Or you might find more value in rewards or buyer protection benefits by paying with a credit card than you would pay in fees.

“If you like to earn rewards on credit card purchases, it might be worthwhile to pay the fee if the rewards you earn outweigh the fees,” Schmoll says. “My wife and I travel hack, and we’re not afraid to pay a convenience fee if it’s going to help our rewards balance or help us meet a minimum spending requirement.”

Before you eat a convenience fee to earn rewards, weigh how much you will pay against what you will earn, Butkiewicz says. A surcharge of up to 4% is likely to exceed any rewards you can earn unless you’re working on a sign-up bonus or making a purchase in a high-value rewards category.

A convenience fee could also be worth the cost if your card comes with purchase protection,price protection or extended warranty benefits.

More from U.S. News

Can You Make a Car Payment With a Credit Card?

Think Twice Before You Buy a Money Order With a Credit Card

You Can Actually Pay Your Rent or Mortgage With a Credit Card

What Are Credit Card Convenience Fees? originally appeared on usnews.com

Update 06/07/22:

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