Cash-Based Payment Options: What's Right for You?
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Rosemary K. Heins, Extension Educator — Family Resiliency
Revised June 2016 by Antonio Alba Meraz, Extension Educator — Family Resiliency.
You may want to pay cash for purchases for various reasons, including not having a bank account, lack of familiarity with the banking system, lack of trust in the system, or just for convenience. If you do choose to pay with cash, you should know how to do so safely, as well as understand all the cash-based payment options available to you.
Proof of Payment
When you buy products or pay bills with cash, it’s important to obtain proof of payment. For most purchases, a sales receipt serves as proof of payment for a specific service or product. Keep your sales receipts and use them for documentation should the product need to be returned.
If a bill is paid in cash, the person receiving payment should mark the bill paid and provide a sales receipt to the buyer. If a receipt is not offered, you (the payer) should request one. The receipt should show your name, a short description of the product or service purchased, the transaction date and amount paid, and the signature of the clerk or other person receiving payment. If this is a recurring bill, you should keep the sales receipt until you receive the next billing statement showing the previous bill was paid.
If you make cash transactions of $10,000 or more with a bank or a non-financial institution, such as a car dealership, you should know that the business receiving the cash is required to file a currency transaction report (CTR) with the Internal Revenue Service within 30 days. CTRs provide documentation for law enforcement officers who investigate money laundering and other financial crimes (Federal Financial Institutions Examination Council, 2016).
You should never send cash through the mail to pay a bill — cash can be easily lost, stolen, or destroyed before reaching the recipient. Instead, obtain a money order or cashier’s check to pay by mail or to make large purchases in person.
You can obtain a money order, for a small fee, at various locations, including post offices, banks and credit unions, and some retail businesses, such as gas stations and drug stores. Money orders for U.S. transactions are issued for up to $1,000, while international money orders are limited to $700 for most countries, and $500 for El Salvador and Guyana. The cost of money orders sent to destinations within the United States varies according to where you order one (bank fees are higher than other sources) and the amount of the money order. For example, U.S. Postal Service fees are currently $1.25 for money orders up to $500 and $1.65 for money orders from $500.01 to $1,000.
When buying a money order you should fill in the date and name of the intended recipient, and sign the order immediately so no one else can cash it in case of loss or theft. Keep a copy of a money order as proof of payment.
Payroll cards are similar to stored value products like pre-paid phone cards or bank debit cards. Since 2001, there has been steady growth of payroll cards, rather than payroll checks, for employees to receive their wages. Benefits to employers include less cost for printing, processing, and handling of payroll checks. Benefits to workers, particularly those without a bank account, include reduction or elimination of check cashing fees, 24-hour access to funds through ATMs, less need to carry a lot of cash, no need to withdraw all the money at one time (similar to a bank account), and easier money transfers within a family.
People who have a choice of being paid by payroll card, a paper check, or direct deposit need to determine the best choice for themselves. Here are some questions to consider about payroll cards.
- Is the payroll card issuer reliable, such as an established bank? If not, decline this payment option.
- Does the issuer offer protection if the card is lost or stolen? If not, decline this option.
- Are there fees for using the card? If you can’t afford them, decline this option.
Prepaid cards, also called stored-value and prepaid debit cards, are “pre-loaded” with money you pay to the issuer at the time of purchase. You can buy prepaid cards online and at many retailers, as well as some banks. Prepaid cards offer many benefits for consumers, including:
- An easy way to pay for goods and services without carrying cash.
- No need to have a good credit history or open a bank account to obtain prepaid cards.
- Built-in spending control because you can only spend what’s loaded on to the card.
- In some cases, access to cash from ATMs.
Prepaid cards look like any normal credit or debit card, with a card number, signature strip and company branding. However, prepaid cards do not provide a line of credit like credit cards, and they are not linked to a checking account like a bank account debit card. In addition:
- A prepaid card doesn’t earn interest or help you build a credit history, as use of a credit card would.
- Fees associated with buying the card, making utility payments, getting cash from an ATM, and loading money might be prohibitive. Also check for monthly fees or dormancy fees when not using a prepaid card.
- Prepaid debit cards issued by a bank may offer some Federal Deposit Insurance Corporation (FDIC) protection. Other types of prepaid cards do not offer FDIC protection.
As you can see, paying with cash or using alternatives such as a cashier’s checks, money orders, payroll cards, or prepaid cards offer ways to conduct financial transactions without a bank account. But your long-term goal ought to be to open a checking and savings account with a reputable bank in order to protect your money and build your credit.
Consumer Financial Protection Bureau. (n.d.). Prepaid cards.
Consumer.gov. (n.d.). Prepaid cards. Federal Trade Commission.
Consumer Reports. (2016). Prepaid card buying guide.
Federal Financial Institutions Examination Council. (2014). Currency transaction reporting — Overview.
U.S. Postal Service (2016). Money orders.U.S. Postal Service (2016). Send money abroad.
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