Learn all about supermarket credit card fees and surcharges so you can avoid them while you’re doing your grocery shopping.
You might be surprised to learn this, but there are several instances in which using a credit card at the supermarket could attract bank fees, such as when you make a payment or get cash out. Unless you are extremely diligent in going over your monthly statements, you might not even realise when you’ve been charged a fee for the transaction.
This guide will explain all the possible credit card fees that you might encounter at the supermarket and look at ways to avoid them. It will also outline the different options you have if you want to get more value out of using your credit card at the supermarket so that you can choose an affordable and convenient way to pay for your groceries.
What fees can apply when I use my credit card at the supermarket?
We’ve categorised the possible fees below to help you understand when you may be getting charged for buying groceries with plastic.
Previously, businesses were unregulated in terms of the credit card surcharges they could apply to transactions. However, from 1 September 2016, the ACCC and the RBA have imposed and enforced laws limiting credit card transaction surcharges charged by large companies to the actual cost of processing. Smaller businesses have up until 1 September 2017 before the same legislation will apply to them.
As such, a credit card surcharge will soon almost always be between 1-3% of the transaction value, with the exception of BPAY, PayPal, Diners Club and American Express cards directly issued by American Express, which are not covered by the ban.
While major supermarkets such as Coles and Woolworths do not currently apply any credit card surcharges, some others may. For instance, ALDI applies a 0.5% surcharge to all credit card and contactless payments. Their rationale is that they’d prefer to give customers the payment option and have those choosing to pay by card directly bear the costs of processing, rather than hike up grocery prices across the board to cover the cost of card acceptance and processing.
How to avoid: Every business that charges a credit card surcharge is obliged to inform customers of the cost before they pay, while at the same time offering a surcharge-free alternative payment method. Be on the lookout for signs notifying you of an applicable surcharge before paying and, if there is one, consider using a debit card or cash instead.
While you can avoid ATM fees by getting cash out at the checkout, cash advance fees will apply if you use your credit card. This fee is typically around 3% of the transaction amount and you will also accrue interest at the cash advance interest rate from the time you make the transaction.
How to avoid: To avoid these unnecessary fees and high interest charges, you should never use a credit card to get cash out from anywhere, even at the supermarket.
Other “cash equivalent” transactions
There are some transactions that you can make at the supermarket that are also categorised as cash advances and which attract the same cash advance fee and cash advance interest rate as mentioned above. Cash equivalents are commonly described as “items that can be exchanged for cash”, including phone recharge vouchers, gift cards and prepaid card reloads.
How to avoid: You should be aware of what transactions are considered “cash equivalents” by your bank or credit card provider. Read the terms and conditions or Product Disclosure Statement carefully, or give your card provider a ring to ask. With that knowledge in mind, you can choose an alternative payment method when spending money on cash equivalents at the supermarket, such as paying by cash or debit card.
How to get more out of using your credit card at the supermarket
On top of saving money on fees with the above tips, you can also derive more value from swiping at the supermarket if you have a rewards card. Consider earning rewards while spending with the following options:
- Rewards credit cards. Rewards credit cards typically allow you to earn points for each $1 spent on purchases. You can redeem an array of rewards from accumulated points, such as flights and flight upgrades, gift cards, merchandise and even cash back on your credit card. Some rewards cards also allow you to convert your rewards points into frequent flyer points with their frequent flyer partners.
- Frequent flyer credit cards. Frequent flyer credit cards are very similar to rewards cards, except that they are directly linked to a specific frequent flyer program and you earn frequent flyer points per $1 spent on purchases. Your points will then be redeemable via the frequent flyer program for flight and flight upgrades, hotel accommodation and travel packages, as well as a whole range of other products.
- Supermarket credit cards. Supermarket credit cards are supermarket-branded credit cards that usually offer higher earn rates for shopping at that supermarket chain or any partner stores, for example the Woolworths Money Everyday Platinum and the Coles Rewards MasterCard. The points you earn can then be redeemed for cash back or supermarket discounts, as well as for rewards in a proprietary rewards program like Coles flybuys or a frequent flyer program like Qantas Frequent Flyer when using the Woolworths Money Qantas Platinum Credit Card. You may want to check our Woolworths and Coles credit card review and comparison page.
If you’re thinking of getting one of these types of cards, consider the following factors to help you compare:
- Earn rate. This is the rate at which you earn points for spending. For example, you could earn 1 point per $2 spent or 2 points per $1 spent, but the cards with better earn rates usually also come with higher annual fees. Depending on how much you spend on your card, the annual fee could offset the benefit of a higher earn rate.
- Average supermarket spend. Knowing how much you usually spend can help you work out if a card’s annual fee will be worth its higher earn rate. In general, if your average supermarket spend is low, a high annual fee card with a high earn rate would not be worth your while.
- Annual fee. There are cards out there with no annual fees, which can be more suitable if you’re a low frequency user or a low spender. On the flip side, there are cards with high annual fees that also pack great benefits, including sign-up bonus points and the ability to earn up to 3 points per $1 spent at the supermarket.
- Interest rates. This is more important if you plan to carry a balance on your card, but less of a consideration if you regularly pay off your statement balances in full and on time.
- Cash advance fee. This is a fee of around 3% of the transaction amount that’s charged on cash advance transactions, such as making ATM withdrawals, getting cash out or buying travellers cheques, phone recharge cards or Lotto tickets.
- Interest-free days. Most credit cards offer interest-free days on purchase transactions, giving you a grace period in which you can pay off your purchases without incurring interest. This is usually around 44 or 55 days and it only applies to purchases, not to cash advances or balance transfers. Most cards also require that your balance be fully paid off by the due date of your previous statement to enjoy this interest-free period.
Compare Supermarket Credit Cards
Rates last updated October 21st, 2016.
- Coles Low Rate MasterCard
Purchase rate has been updated from 12.99 to 9.99% p.a.
February 10th, 2016
- American Express Platinum Edge Credit Card
Standard 10,000 bonus points offer has replaced the 30,000 bonus points exclusive offer.
September 1st, 2016
- Coles No Annual Fee MasterCard
New offer of 0% for 15 months on purchases, which is valid until 31 December 2016.
October 5th, 2016
Now that you’re more aware of the possible credit card fees a supermarket shop could incur, you can be sure to avoid them in the future. Remember to always pay attention to how and when you use your credit card in order to maximise card benefits and minimise fees. If you’re looking for a new rewards card, compare a wide range of options before selecting the one that best suits your needs.