Cash is said to be king, although its reign looks increasingly threatened as more of us pay with plastic or online. But what are the plusses and minuses of using coins and notes over electronic payments?
Cash has been around for millennia. It’s been widely accepted ever since our ancestors realised it’s easier to hand over a fistful of coins rather than lugging something to market in the hopes of bartering what they had for what they wanted.
But what about the pros and cons of using cold hard currency nowadays?
Purchasing things with cash may be less common than once, especially for expensive purchases, but there are still advantages to having a few coins and notes in your wallet. For instance, cash is:
Easier to budget: If you like to keep a close eye on what you spend, using cash can help. Limiting yourself to what’s in your wallet can stop you from overspending.
Safer from some sorts of fraud: Using cash means there’s less risk of your debit or credit card details falling into the wrong hands.
Widely accepted: Cash is accepted in most shops, vending machines, car parking metres and other facilities. Indeed, some only accept hard currency.
Free to use: Unlike many cards, you won’t be charged interest for utilising cash or have annual fees to pay. Just remember not to withdraw cash using a credit card and to avoid using fee-charging ATMs, if possible.
With more ways than ever to pay for your purchases, you may find that cash is not always the best payment option. That’s because cash is:
At risk of theft: If you do all your shopping with cash, you’ll need to carry a lot around with you, which means you’ll be out-of-pocket if your money is lost or stolen.
Less convenient: Contactless payments have made using your card or mobile phone easier than cash in some situations, such as on public transport.
Potentially unhygienic: Cash is a breeding ground for bacteria, including two superbugs that pose the greatest threat to human health.
The move away from spending with cash started hundreds of years ago with cheques but has accelerated in recent decades, first with credit cards and debit cards and now with the advent of online and app services.
Here are the main options for those who appreciate the appeal of a cashless society.
Using your debit card is the most popular payment method in the UK. In September 2021 alone, there were 1.9 billion transactions in the UK, up 14% on the same month in 2020.
Conversely, cash payments have been falling by 15% a year on average since 2017 – although cash transactions plunged 35% in 2020 due to coronavirus restrictions.
When you pay with your debit card, the money is taken directly from your current account.
There are several ways you can use your debit card and current account to spend, including:
Using your card at the till
Setting up direct debits and standing orders
Buying goods online or over the phone
Most debit cards now offer contactless payments, making spending small amounts of up to £100 per transaction on a card much faster.
Your debit card payments are also protected under the Chargeback Scheme. This means you could claim a refund if there’s a problem with a purchase made using your debit card.
You shouldn’t be charged for using your debit card unless you go into your overdraft, although some current accounts charge a monthly or annual fee.
While lagging way behind debit cards in terms of transactions, credit card use is also rising. In September 2021, there were 321 million transactions, 14% more than the same month in the previous year.
These cards work in the same way as a debit card, but you borrow the money you spend instead of it coming straight out of your account. For this reason, they can be a risky way to spend because overspending could lead to debt, and you may be charged interest on your card balance.
However, if you can pay off your balance each month, you won’t be charged interest and you might be able to earn rewards each time you spend.
Credit card purchases come with Section 75 protection, which means you could get your money back if something goes wrong. If the total purchase price is outside the £100 to £30,000 range offered by Section 75 protection, make a chargeback request to the card provider.
You can use a prepaid card in shops in the same way as a debit and credit card, but you must load money onto it first.
As you can only spend the money you’ve loaded onto the card, there’s no way to overspend and get into debt.
Prepaid cards can therefore help you budget what you spend, and you won’t need to pass a credit check when you apply.
However, prepaid cards usually come with fees, and they aren’t accepted for some transactions, for example, anything that has to be pre-authorised, like paying for petrol at the pump. Here’s more on how prepaid cards work.
All you do is hold your phone over the payment terminal in the same way you would with your card when using contactless.
You can add all your accounts, including loyalty cards, PayPal and gift cards. You can also use the apps to transfer money to friends and family and buy things online.
Some smartwatches also let you do this, with both Fitbit and Garmin having their own payment systems. These payment systems are generally tied to a registered current account.
With so many options available, you’ll have to think about how you spend and where you shop to work out which is best for you.
For example, if you make a lot of expensive purchases, the added protection of using a credit card might be a good option.
However, to make sure you’re prepared for any situation, it’s a good idea to have both cash and cards in your wallet, so you don’t get caught out.