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You’ve probably been asked to pay a surcharge or convenience fee before. Maybe you wondered to yourself exactly what the word meant. The prefix sur means over, but who wants to be overcharged when they pay for a haircut? As for convenience fees … the phrase sounds a bit like an oxymoron, doesn’t it? For example, it seems awfully inconvenient to have to pay a fee on top of your electricity bill! We explain why these fees are charged, how they differ and what to do about them.

A common cost

It all starts with a cost you might not often think about: the credit card processing fee, also called an interchange fee. When you make a purchase with a credit card, the merchant pays to have the charge completed. This fee normally ranges around 1% to 3% for a rewards card, but there’s no maximum legal interchange fee. Most large retailers accept the cost of credit card processing fees in exchange for more potential customers and higher potential spending — because many of us don’t carry much cash with us, the ability to pay with a credit card opens up a lot of opportunity. However, merchants sometimes try to pass this cost on to the customer.

Depending on the reason and circumstances, terms like surcharge, convenience fee or cash discounts are bandied about. While their technical definitions are different, companies sometimes use them interchangeably. For the consumer, these three fees will look pretty similar. They all add a charge to credit card payments, whether a flat fee or a percentage of the transaction. This covers the cost of the processing fee or of paying in an unusual way for the service.

Surcharges

A credit card surcharge is a fee that pays for the cost of the transaction processing. Merchants don’t have to pay a fee on cash, and the cost of processing debit cards is much lower (a maximum of 22 cents plus 0.05% of the transaction). For that reason, companies sometimes feel credit card processing fees cut too deep into their profits, making it hard to do business. In response, they may aim to either incentivize cash and debit or compensate for the cost of credit card use through cash discounts or surcharges.

Retailers can add surcharges to credit card transactions, but not to debit or prepaid cards. Merchants can also set a minimum payment for credit cards of $10 or less. Cash discounts are another option that should technically differ from surcharges. With cash discounts, an enterprise offers a lower price in cash than for other types of payment. However, if the difference between the cash price and standard price is similar to the processing fee, it can seem an awful lot like a surcharge to consumers.

To contextualize surcharges, imagine a small business, like a hot dog stand. Since the business makes many small transactions, it needs a good margin on each sale. For that reason, it may feel it can’t afford a credit card processing fee. The hot dog stand could choose to apply a credit card surcharge or offer a cash discount to cut down on its credit card costs. In states where this isn’t an option, the business may simply not accept credit cards. That said, as mentioned earlier, not charging a fee for credit cards often makes it easier to attract customers.

Convenience fees

One man’s convenience fee is another man’s inconvenience compensation. A business may charge a convenience fee when you pay in a way that’s unusual for the service — and that, in some way, costs them. For example, if you change your airfare ticket over the phone rather than online or in person, you may need to pay a convenience fee. The company justifies the fee by the additional time and customer support of having someone take down your information over the phone and run a charge. To charge this fee, the business must have an alternate, preferred means of payment. The fee can either be a flat fee (as required by Visa) or a percentage of the transaction.

By the strictest definition, and by Visa’s policies, a convenience fee should be a flat fee rather than percentage. However, credit card processors allow some organizations, like the government or educational programs, to charge a percentage convenience or service fee to cover the credit card processing fee. Therefore, in some cases, convenience fees resemble surcharges.

A few instances where you might pay a convenience fee when paying with a credit card are taxes, college tuition, utilities or mortgage payments. For example, if you choose to pay your taxes with your credit card, you’ll need to pay a convenience fee of 1.87% to 1.99% (or the minimum fee, whichever is greater), depending on your credit card issuer. Likewise, if you pay college tuition with a credit card, you’ll likely need to pay a convenience fee (often of about 2.75%).

What should you do about surcharges and convenience fees?

Now that you know what surcharges and convenience fees are, you may be wondering if you can avoid them or if ignorance was truly bliss. The bad news is that, yes, if a retailer requires a credit card surcharge or convenience fee, you’ll need to pay it or choose not to make the purchase with your credit card. And while several states outlawed surcharges on credit cards, these laws have come into question after a 2017 Supreme Court ruling determined a New York law barring surcharges to be unconstitutional. Since this opens a lot of state laws for debate, we recommend you assume surcharges are a possibility in yours. However, there are a few things you can do to manage surcharges and convenience fees.

Notice them

The first step to dealing with extra fees is to notice them. Fortunately, surcharges must be clearly communicated to customers — at point of entry, point of sale and on every receipt. Convenience fees must be disclosed before the transaction is completed and you must be given the opportunity to cancel. Once you know what the fee will be, you can weigh your options. The charge cannot be greater than the merchant’s processing fee. If the fee is high (keep in mind that the merchant likely won’t share this information with you), you may be better off paying with cash or debit (or whatever preferred method incurs no extra charge).

Consider your options

In most cases, credit cards’ rewards don’t outweigh the cost of a surcharge. For example, 1.5% cash back won’t counteract a 1.87% fee for paying your taxes with your credit card. You may find a credit card that beats the percentage fee, like the Citi Double Cash Card (a NextAdvisor advertiser), which earns 2% cash back on all purchases — 1% when you make a purchase, plus another 1% when you pay for the purchase. However, that’s uncommon. If you are looking at a fixed convenience fee, it may take a little more math to determine whether your rewards rate compensates for the cost. At times, you may feel a small fee is worth it just for the convenience.

If you are considering using your credit card for something you can’t otherwise afford to pay in full, like college tuition, a surprisingly high tax bill or perhaps your everyday bills, it’s possible to pay less interest with a credit card. For example, a credit card with a low intro APR period may give you enough time to pay off the balance before it accrues interest.

Do what’s right for you

Sometimes, when faced with an undesirable fee, you’re better off taking your business elsewhere. While it can be unfortunate to miss out on the goods and services you were hoping for, you might be able to find them elsewhere without the extra cost. If customers frequently avoid merchants that charge additional fees for credit cards, those enterprises may adapt and change their business model to accept credit cards.

For more information on how to manage your finances and credit cards, check out some of the other posts on our credit cards blog.

Disclaimer: This content is not provided or commissioned by the credit card issuer. Opinions expressed here are author’s alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This content was accurate at the time of this post, but card terms and conditions may change at any time. This site may be compensated through the credit card issuer Affiliate Program.