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Cash-based payment options: What's right for you?

You may want to pay for purchases with cash for various reasons. Learn how to use cash safely. Also learn about the cash-based payment options available to you. Topics covered include proof of payment, cashier’s checks and money orders, payroll cards, and prepaid cards. Also get information on why some people prefer paying with cash over other methods of payment.

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You may want to pay for purchases with cash for various reasons. Those reasons include lack of a bank account, unfamiliarity with the banking system, and mistrust of the system. Others pay with cash for convenience. If you do choose to pay with cash, you should know how to do so safely. You also need to 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 get 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 if you need to return products.

If you pay a bill in cash, ask the party receiving payment to record it in their records and give you a sales receipt. The receipt should show your name, a short description of the product or service purchased, the transaction date, and the amount paid. The receipt also should include 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.

You should never send cash through the mail to pay a bill. Cash can be lost, stolen, or destroyed before reaching the recipient. Instead, use alternatives like money orders or cashier’s checks to pay by mail or to make large purchases in person. Note that the Internal Revenue Service keeps track of transactions of $10,000 or more. This helps stop money laundering and other financial crimes.

Cashier's checks and money orders

If you have an account with a bank or credit union, you can get a cashier's check there for a small fee. You can also get a money order at a bank or credit union. And you can get money orders at post offices and some retail businesses, such as gas stations and drug stores.

Money orders for U.S. transactions are issued for up to $1,000. International money orders are limited to $700 for most countries, and $500 for El Salvador and Guyana. The cost of a money order sent to destinations within the United States varies according to the amount and where you order one. 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. Bank fees are usually higher than other sources.

When buying a money order you should fill in the date and name of the intended recipient. 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

Payroll cards are like stored-value products, such as pre-paid phone cards and bank debit cards. Since 2001, there has been steady growth in use of payroll cards, rather than payroll checks, to pay wages. Benefits to employers include lower costs 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.
  • Easier money transfers within a family.

Some employers offer a choice of payment by payroll card, traditional check, or direct deposit. If you have a choice, here are some questions to consider:

  • 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.
  • Can the card be overdrawn, and if so, will you be penalized for doing so? If so, consider declining this option.

Prepaid cards

Prepaid cards, also called stored-value and prepaid debit cards, are “pre-loaded” with money you pay to the issuer at the time of sale. 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 get prepaid cards.
  • Built-in spending control because you can only spend what’s loaded on the card.
  • In some cases, access to cash from ATMs.

A prepaid card looks like any ordinary credit or debit card, with a card number, signature strip and company branding. But, prepaid cards do not provide a line of credit like credit cards. What's more, they are not linked to a checking account like a bank account debit card. Besides:

  • A prepaid card doesn’t earn interest or help you build a credit history, as use of a credit card does.
  • Fees associated with buying the card, making utility payments, getting cash from an ATM, and loading money might be prohibitive. Also check whether monthly fees or dormancy fees apply even when you don't use the 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.

Research says

People pay with cash or use cash alternatives for several reasons, including:

  • Banking fees and deposit requirements are too costly for those with limited resources.
  • Migrant workers and others without stable housing find it hard to open a bank account.
  • Workers living paycheck to paycheck don't see any value in opening a bank account.

Research also shows that people are more likely to pay with cash for transactions under $20. In addition, Latinos and African Americans prefer using cash more than other demographic groups in the United States.

Whatever your reasons for paying with cash, your long-term goal should be to open a checking and savings account with a reputable bank. This way, you can better protect your money and build your credit.

Rosemary K. Heins, Extension educator in family resiliency

Revised by Antonio Alba Meraz, Extension educator in family resiliency

Reviewed in 2018

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