In 2011, the United States government lost over $60 million through the minting of pennies. One-cent pieces now cost the government 2.41 cents, each, to produce. When the American cent was introduced in 1793, a typical annual salary for a teacher may have been about $60, so a cent would represent 0.016 percent of this person’s salary. That may seem insignificant at first, but a cent today represents 0.000025 percent of a teacher’s salary of $40,000 today.
In 1793, you might have expected a loaf of bread to cost about 4 cents. Today, a loaf of bread from my supermarket’s bakery is being sold for $2.69. The cent played a much more significant role in life when it was introduced in this country alongside the other coins and currency.
A few years ago, the Federal Reserve Bank of Chicago proposed an odd solution to the problem caused by the rising costs of producing the cent. The Chicago Fed suggested revaluing the cent to be worth five cents, like the nickel. Canada has offered what is probably the best solution for this particular dilemma: halting production of one-cent pieces entirely.
This fall, Canada will no longer produce the cent. Retailers will need to adjust prices for cash transactions, rounding to the nearest five cents. Electronic transactions will continue to be processed in one-cent increments, so no rounding will be necessary for debit or credit card transactions in Canada. All cents in Canada will eventually be pulled from circulation.
One concern is that the lack of cash prices in one-cent increments and the necessity of rounding will cause prices to increase overall, but Canada’s Ministry of Finance points to other countries that have eliminated the cent and have not experienced rising prices.
This is clearly the path the United States should take. The cent is a nuisance, and is expensive for the government (and public) to produce, and should be eliminated. A price difference of one cent is meaningless in today’s economy.
Photo: Robert Couse-Baker
CoinWorld
In what almost seemed like a staged publicity stunt, Verizon Wireless quickly rescinded their plans for a new $2 fee for most bill payment options. An employee leaked an internal memo describing the new fee, and within twenty-four hours, the wireless company both confirmed and then rescinded the fee, citing their policy of listening to their customers. The timing was convenient; Verizon Wireless had been suffering from a number of mobile service outages that had customers complaining about the company.
It seemed to me there was more outrage about the service interruptions than the $2 fee. The fee was addressed within 24 hours while the service outages were never properly addressed. Would a company stoop to creating its own fake conflict in order to distract customers from other problems?
Real customer outrage is powerful, however. Bank of America’s $5 monthly debit card fee was in the works when massive consumer feedback was successful in convincing the company to reconsider its plans, and find revenue from consumers elsewhere.
There are issues more important than these small fees. While fees here and there can have a snowball effect, both over time and across other companies happy to charge the same fees once success is apparent, the bigger issues often don’t get as much attention. Wells Fargo’s change of policy to include mandatory binding arbitration is a much bigger problem for consumers than a fee, but since it isn’t immediately apparent how this could affect customers, people stay silent. Customers who have trouble with the bank will be prevented from availing themselves of a court process that includes discovery and appeals.
Most of the time, binding arbitration clauses won’t have any immediate effect on customers’ wallets unlike monthly fees, but the consequences could be worse. With enough outrage, Wells Fargo would likely change these plans, but the issue is not getting enough attention.
Here are some of this week’s most interesting articles in addition to a few articles I’ve published elsewhere. Read the full article →
On May 16, ING Direct will change the rate is uses to determine the cost of overdrawing the Electric Orange checking account.
ING Direct’s overdraft system is a little like Passover, where we ask how this bank is different than all other banks. Rather than charging an overdraft fee if you send an electronic check or other electronic payment that exceeds your balance like most other banks, ING Direct extends a small line of credit and charges you interest for its use. The amount of interest is based on what ING Direct calculates as a prime rate plus a margin.
That margin has been, and will continue to be until May 16, a rate of 4%. Added to the ING Direct Prime rate, the total interest charged for using the line of credit feature of Electric Orange has been 7.25%. That margin rate will increase to 8% on May 16, and when added to the updated ING Direct Prime rate, will result in a total interest rate of 11.25%. ING Direct’s terms allow for this rate to be variable. In fact, ING Direct can increase the margin up to 12% without changing the terms for all customers. I expect, since that condition is currently allowed, for ING Direct to follow through and increase that margin some time in the future. Meanwhile, current customers of the Electric Orange checking account who use the line of credit should be aware that they will be charged more beginning May 16. As of 10.21.11 the ING Direct savings rate is 0.90% APY and the checking rates are 0.20% – 1.10% APY.
Even with this increase, this line of credit is a better deal than most overdraft protection terms offered by other banks. Rather than a fee of $25 to $35 per overdraft, you could be paying less than a dollar if your use of ING Direct’s line of credit is temporary.
For those who would rather have their transactions rejected than dip into a line of credit, the bank allows customers to cancel their overdraft coverage by calling 1-888-464-0727.
Do you use ING Direct’s line of credit? I used it once, when a deposit I scheduled was unavailable before a scheduled payment hit my Electric Orange account. I owed the bank just pennies for the protection, but I try to be more careful when scheduling my deposits and withdrawals.
I am now providing a weekly article to U.S. News & World Report for their website’s “My Money” Blog, an online-only feature. So far, I’ve offered two articles. Here are the two articles I’ve written for this new blog as well as some other articles I’ve enjoyed recently.
10 Unusual Ways to Save Money. This article encourages people, perhaps those who believe they have already maximized their savings opportunities, to consider some additional actions that could take their savings to the next level. These are not typical savings tips, and the article seemed to stir much controversy.
Not every piece of advice is applicable to everyone, but I see why some people simply reacted with anger. I’ll address some of these concerns in a future article.
When to Go Generic — and When to Pay More. In some cases, store brand or generic items are indistinguishable from their more expensive, brand-name counterparts. There are several circumstances where saving money is not worthwhile, when the quality sacrifice is too great and when quality is important.
20 Things You Should Never Buy Used. This is a contribution to the US News My Money Blog by Wise Bread. This article also spurred a bit of controversy, though I only disagree with one of the items on the list: digital SLR camera lenses. I would consider buying used lenses if it meant I could afford a level of quality I wouldn’t be able to otherwise. It’s important to be able to evaluate any used lens to ensure it works properly and produces the quality image you expect.
Do Costs Have a Doppler Effect? If you’ve ever been passed on the road by an emergency vehicle with its sirens blaring, you might be aware of the Doppler effect. Sound waves compress as the source and the listener approach each other or one approaches the other, and the sound waves expand as the distance between the source and the listener increase. This results in a change of pitch. Read this article to understand how Abigail applies the concept to personal finance.
