Credit Card at Gas Pump: A Money Saving Practice with Many Virtues

Should you use your credit card at gas pump? These days, a lot of advice points people in the direction of paying with cash instead of credit when filling-up their vehicles:

• To Save Money at the Gas Pump, Pay Cash – BusinessWeek
• Paying with cash can save money at the pump – Yahoo

Mostly, this line of thinking emanates from the growing trend of gas stations and convenience stores offering discounts to customers paying with cash. When customers pay cash, the stores eliminate the costs of processing fees, receipt paper and paperwork associated with credit cards. They can offer the cash-paying customer a lower price and still make a little more money.

But most gas retailers around the country still charge the same whether customers pay with cash or plastic. For these situations, it is pretty clear that prudent use of the right credit card at the gas pump can be a major money-saver in the era of $4.00 per gallon gas. Even when cash discounts are offered, the hidden benefits of paying at the pump with a credit card will outweigh the value of the discount.

5 Keys to Successfully Using a Credit Card at Gas Pump

1. Monthly balances must be paid in full by the due date to avoid finance charges. If balances aren’t fully paid each month, finance charges will quickly outweigh the benefits of using a credit card at the gas pump.
2. The right credit card to use at the gas pump is one with no annual fee and a high cashback reward earn-able at any gas retailer. There should be no maximum limit on the reward you can earn. Brand-specific credit cards that offer high rebates/rewards but only at specified types of stations (Shell, BP, etc.) are not the best option.
3. Only pay for your fuel at the pump.
4. Consider using a dedicated card for fuel purchases only.
5. Combine with other savings available through vendor loyalty discounts or membership clubs (Sam’s Club, Costco, etc.)

By far the best credit card choice to use for fuel purchases is the Platinum Cashback Rewards Visa available only through Pentagon Federal Credit Union (PenFed). ((DISCLAIMER: I am not an affiliate of PenFed or VISA and do not benefit in any way if you decide to sign-up for this card. I simply have used the card for several years now and, based on my experience, believe it is an outstanding card that I can highly recommend.)) This card provides everything needed to minimize the net cost of your fuel purchases including a generous 5.00% cash back rebate from gas purchases paid at the pump, regardless of gasoline brand or station, and with no limits.

Credit card rebates are only part of the savings realized when you buy gas with a credit card at pump.

Gas station owners will tell you that the profit margin from selling gasoline is very small. Most have turned to selling goods like tobacco, beer, lottery tickets and convenience foods to enhance their profits. Moreover, these retailers have developed expertise in encouraging store visitors to make impulse purchases with strategic product displays and positioning.

It’s a safe bet that a large portion of consumers who walk into the gas station/convenience store simply to pay for the gas they just pumped walk out having bought something else besides gas. Even where discounts for paying with cash are offered, the savings will quickly be eaten up by making an impulse purchase or two.

The best strategy is to pay for fuel at the pump with a solid rewards card (like the PenFed Platinum Cashback Rewards Visa), then leave the premises. Disciplining yourself to do this will generate significant rewards – consisting of both hard cash and less tangible savings:

• $281 – Annual credit card rewards for two-car family driving each car 15,000 miles per year. Cars assumed to get 20MPG and gas cost assumed to be $3.75/gallon: ((30,000 mi/20MPG) x 3.75 x 0.05)
• $208 – Annual savings from avoiding impulse purchases by going into store. Assumes two cars each needing weekly fuel purchase (104 visits); $2.00 in purchases avoided each visit. Much higher savings are achievable if you have children and can avoid visiting store with them.
• $650 – Annual time savings from stopping in store. Assumes 104 visits, five minutes spent in store on each visit totaling 8.67 hours per year. I value my time a $75/hour.
• $??? – Annual savings from better nutrition and possible weight loss from avoiding junk food or other less than healthy impulse purchases. Additional benefits if you have children.
• $??? – Savings achievable from better fuel management by having a credit card statement with clear consolidating your fuel purchase records.

From my experience, the above figures are conservative and understated. The time may come when gas stations offer discounts for paying in cash that outweigh the benefits of using plastic. But that isn’t the case yet. In the meantime, I’m eager to grab the savings while I can:

Thank you to Canadian Personal Finance Blog for including our post on Good Reasons to Use a Credit Card at Gas Pump in the June 27, 2011 Carnival of Personal Finance #315 : Bring on the Long Weekends.

Be sure to check out the Carnival for a rundown on other recent high-quality personal finance blog articles.