How Banks Are Taking a Cut of Charitable Giving – and 6 Ways to Avoid It

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Your credit card issuer profits off every transaction – even when you donate to a nonprofit. Here's how to make sure more of your money is getting to the people who need it.

Imagine if you made a $100 charitable donation, but you later found out that some unrelated third party pocketed $3 of it. If you or I did that, it would be called theft. But when a bank does it, we call it a credit card processing fee.

Nonprofit organizations agree to these fees for the same reasons that businesses do: Performing a credit card transaction is so easy (for both cardholders and recipients) that the fees are considered just a cost of doing business. We here at Money Talks News may disagree as to whether or not swipe fees are fair, but we all want charities to get as much cash as possible. Here’s what you can do.

Maximizing your charitable donations

When you charge money to your credit card,  the processing network and your bank earn a merchant fee, also known as a swipe fee. These charges tend to consume around 3 percent of the transaction – even when it’s a nonprofit accepting the funds. So how do you make sure that a charity receives the most benefit from your donation? Follow these steps…

1. Consider other ways to donate. Every type of donation has its own inherent costs. For example, cash donations require labor to accept and count it, security to store it, and transportation to deposit it in the bank. But a wireless bank transfer is probably the least expensive way for a charity to accept cash, followed by checks, then paper money.

2. Use your debit card. If you want to minimize merchant fees but still use plastic, try your debit card. Thanks to recent legislation, debit card fees have been drastically reduced. This means that charities will benefit from lower merchant fees, just as businesses have.

3. Donate via PayPal. PayPal processes donations for charity by charging them 2.2 percent – and 1.9 percent for nonprofits that receive more than $100,000 a year. This is less than standard credit card merchant fees, and you can use your favorite card.

4. Look for merchant fee waivers. Credit card processors have shown some recognition that their merchant fees are impacting charities, but only when a major disaster makes worldwide news. For example, most credit card processors waived their merchant fees during the aftermath of the 2004 Indian Ocean Tsunami and the recent earthquakes in Haiti and Japan.

5. Use a card with lower merchant fees. Among retailers, it’s well known that American Express charges higher merchant fees than competitors Visa and MasterCard. As someone making a charitable contribution, you can at least try to use the less costly cards to make sure that your chosen charity receives more of your donation.

Eliminate all fees with Capital One’s no-hassle giving site

If you are a Capital One cardholder, you can make donations to your favorite charity without incurring merchant fees. Just go to their Giving Site and choose from any charity listed by the Network for Good.  By waiving merchant fees for all charitable donations, Capital One has become the only major card issuer to send 100 percent of its cardholder’s donations to the nonprofit of its choice.

Let’s hope Capital One’s example eventually catches on. Until then, it’s up to you to choose the best method of payment so more of your donation dollars reach the organizations you support.

Stacy Johnson

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