You might have noticed a new fee popping up on your recent credit card bill for paying utility bills. Don’t worry, you’re not seeing things! Some banks in India have recently started charging an extra 1% fee on utility bill payments made using credit cards.
Why the Change?
So, why are banks adding this extra cost? It boils down to money. When you use your credit card for a transaction, the bank that issued your card pays a fee to the bank that receives the payment (like the utility company).This charge is known as the Merchant Discount Rate (MDR).
For most purchases, the MDR is a small percentage and is factored into the price of the product or service. However, for utility bills, the MDR is typically lower. This means banks earn less money when you use your credit card to pay your electricity, water, or gas bill.
Looking for More Profit
To make up for this lower profit on utility bill payments, some banks have decided to introduce a surcharge, which is basically an extra fee you pay on top of your bill amount. This way, they can earn more money even on these transactions.
Not All Banks are Doing It (Yet)
It’s important to note that not all banks in India are charging this fee. It’s a recent change implemented by a few banks, like Yes Bank and IDFC First Bank. Other banks might follow suit in the future, but for now, you might still be able to pay your utility bills without the extra charge depending on your bank.
Should You Still Pay with Credit Card?
Even with the new fee, using your credit card for utility bills can still have some advantages. Here’s what to consider:
- Rewards: Many credit cards offer reward points or cashback on all purchases, including utility bills. If the value of the rewards outweighs the 1% fee, then using your credit card might still be beneficial.
- Convenience: Paying online with your credit card is often quicker and easier than other methods like mailing a check or going in person.
- Building Credit: Using your credit card responsibly and paying your bills on time can help you build a good credit score, which can be helpful when applying for loans in the future.
Do the Math Before You Swipe
The best way to decide whether to pay your utility bills with your credit card is to do the math. Consider the following:
- The amount of your utility bill: The fee will have a bigger impact on smaller bills.
- The rewards offered by your credit card: Calculate the value of the rewards you’ll earn on the bill payment.
- Any alternative fees: Are there any fees associated with other payment methods, like bank transfer fees?
By comparing all these factors, you can decide whether the convenience and potential rewards of using your credit card outweigh the new 1% fee.
Remember, you have options! If you’re not happy with the new fee, you can always explore other ways to pay your utility bills, like setting up automatic debits from your bank account.
