When prices at the pump rise dramatically, it can be one of the first places most families feel the pinch. It's become increasingly common to see two different prices for each grade of gasoline at the pump – a cash price and a credit card price. Why is this?
Gas stations are in fact legally allowed to charge a customer extra if they choose to use a credit card to purchase gas. This is because the gas station owners pay an interchange fee to the payment networks. They often pass this fee on to the consumer to recoup that additional cost.
An interchange fee is part of every credit card transaction that a merchant processes. The merchants themselves do not keep this money though. It's passed back to the card issuer to cover the cost of processing the transaction as well as the risks associated with lending the credit.
How much more do gas stations charge when you use a credit card?
Gas stations charge an average of 5 to 10 cents more per gallon for credit card purchases.
According to the Association for Convenience and Petroleum Retailing (NACS), credit card processing fees at gas stations average about 2.5% of the total transaction price. As of October 2022, the national average for a gallon of gas was $3.76, which would make the processing fee about $0.09 per gallon.
In general gas stations typically have a low profit margin on gasoline sales. Intense competition from other nearby stations means they're often pricing a gallon of gas just a couple pennies over cost.
Is it better to pay for gas with cash or a credit card?
One form of payment over the other is not necessarily better. Paying with cash means you're saving a bit on the total transaction, and because you're not using credit, there's no chance of accruing any interest charges.
If you have a rewards credit card, however, you will earn rewards points or cash back. In some cases, you may have accelerated earnings on categories such as gas stations. In addition, using a credit card offers a convenient and safe payment method since you don't have to carry cash around.
How can I save more money on gas?
When you save money at the pump, it can free up financial resources that can be used toward other living expenses. Here are several strategies for saving money on gas.
Use a rewards credit card
There are some rewards credit cards that may offer up to 5% cash back on certain spending categories—including gas stations. If you are able to pay off your credit card bill on time and in full every month, using a rewards credit card at gas stations can be an excellent way to earn some of that spend back in the form of points. Many rewards cards offer at least 1% back on all other purchases as well, so even when you're shopping at a grocery store or dining out, you're earning points.
Pay with cash
Some gas stations offer a different price to customers paying with cash, since they don't incur an interchange fee when cash is used. You might find that keeping some cash on hand just for this purpose can be a straight-forward way to save at the pump.
Carpool or use public transit
When possible, consider taking public transportation, walking or even riding a bike to your destination. Or, when you're heading out somewhere with friends or coworkers, try carpooling or splitting the cost of a rideshare service. Not only is this good for the planet, but it also saves a lot of money on gas.
Consult an app
Free apps such as GasBuddy, Google Maps and Waze offer price comparisons for gas stations all over the U.S. and Canada and a lot of the information is crowd-sourced in real time by visitors to the gas stations. In addition, GasBuddy offers insights into nationwide data and trends so you can keep an eye on regional changes that affect you. Taking a look at one of these apps before you decide where to fill up could help you save. In some cases, it might be worth crossing county or state lines to get the best deal.
Stay up to date with vehicle maintenance
Make sure to stay on top of regular maintenance for your vehicle. This includes things like oil changes, proper tire inflation and rotation, fuel injection servicing and changing out your air filters. These things can make a big difference in the fuel efficiency and overall performance of the vehicle. Long term, this may translate to less visits to the gas station.
Many gas stations are charging more to use your credit card at the pump in an effort to cover the additional fees they incur from payment networks. For some, the convenience of paying with a card is still worth it. For others, it may make more sense to use cash instead. Either way, it's helpful to do a little planning before you head out the door to fill up. Use a rewards credit card to earn points, consult gas apps to price compare, make sure you're keeping an eye on car maintenance. Whenever possible—use public transportation.