- Select Cheque or Savings for Immediate Transactions: These options draw funds directly from your linked account via Eftpos, providing real-time processing, potentially avoiding surcharges or delays.
- Choose Credit for Extra Security or Overseas Use: Credit options often route through Visa or Mastercard, offering added fraud protection and wider acceptance, but may incur surcharges and delayed settlement times.
- Tap-and-Go and Smartphone Wallets Often Default to Credit (But It’s Changing): Most contactless and smartphone payments are routed via Credit, though Least Cost Routing (LCR) is increasingly available, offering savings through the Savings option via Eftpos.
- Know Your Account Setup: Your bank determines whether Cheque or Savings will work for your card; if unsure, Savings is often the default. Credit often works, too, but with the extra considerations as above.
While tap-and-go or contactless payments are pretty much all anyone uses for everyday purchases, it can still be helpful to know the differences between the three options. If your total at the checkout is more than $100, then you'll have to choose one of the options, as contactless doesn't go over this amount.
For most of us, we simply select an option that works without giving it a second thought. Not everyone knows what's actually going on behind the scenes when they choose their payment path.
Most card terminals in the country have those familiar three buttons for you to choose from when you're paying by card- credit, cheque or savings. You have to hit one of them or you won't be leaving with your goods.
However, many people might not have a choice - with only one option that’ll actually work. But if you do have options, here’s what it all means.
Cheque, Savings or Credit - A Quick Guide
Cheque and savings operate similarly these days - credit is the main differentiator. Here’s a brief breakdown:
|
Option |
Pros |
Cons |
|---|---|---|
|
Cheque or Savings |
|
|
|
Credit |
|
|
In the end however you might not get a choice as to whether you select cheque or savings - when signing up to a new bank account, they should tell you which button to press.
Cheque Explained
Cheque is a bit of an antiquated term, dating back to the 1980s, and borrowed from our American ‘checking’ cousins. It arose from when people had separate chequing accounts yet were still able to transact freely on their savings account.
Chequing essentially means ‘spending’ - a few banks still tend to route the transaction account through the cheque button, namely Westpac. Chequing is usually routed through Australia’s very own payments system, Eftpos.
On the off chance you have a savings account linked to a debit card, if you want to use your everyday money, it’s probably better to select cheque.
Savings Explained
By opting for savings, most of the time you are also accessing your transaction account. Yes it is called ‘savings' but this label also dates from the 1980s and now relates to your transaction account.
Your bank should tell you which button to press, and if you don’t know, pressing Savings is usually a safe bet. Most savings accounts are sequestered away from your debit card these days - and for good reason; you want to continue saving!
Like the Cheque option, selecting Savings is routed through the Eftpos system. If you’re wondering why this keeps getting mentioned, there’ll be more on that below.
Credit Explained
If you want to pay with a credit card you select this option. You may also have a debit card that you can use as a credit card, too. This debit card must be linked directly to an account of yours from which it draws the funds.
While this is changing, merchants have traditionally paid more to accept ‘Credit’ payments as they are routed through Visa or Mastercard. This means they could have a surcharge if you select Credit, which can be annoying.
Tap-and-go, and digital wallet transactions are also often routed through Visa or Mastercard via the Credit function. This is changing, however, and you might see the option to select ‘Savings’ on your smartphone wallet card of choice.
Another potential downside of selecting Credit is that the transaction takes longer to clear. You might see ‘Pending’ on your banking app for a few days, and this is why. While this can be a good security and anti-fraud measure, it can throw a spanner in the works for other purposes.
For example, if you have a savings account where you need to satisfy a transaction requirement, and only a few days left in the month, it might be a good idea to select CHQ or SAV instead.
A Quick Mention - Smartphone Wallets and Contactless Payments
Contactless cards and smartphone wallets e.g. Google Wallet and Apple Pay are becoming the norm now, which makes it even easier to pick up small purchases (the current limit for contactless transactions is $100).
Most of the time, however, these are routed through Credit. This means you could face a surcharge, and the transaction could take days to clear. However, this is changing as more banks give the option to select Savings when paying via smartphone.
Behind the Scenes - What It All Means
We keep mentioning ‘routing’ through Eftpos, Visa, or Mastercard. It might not matter to you, but it could explain why you’re getting a surcharge.
Costs for the Business
Merchant terminals - i.e. where you tap or insert your card - aren’t free for the business. They often have to rent them from the provider, and there is a small interchange fee on every transaction they make - charged by Eftpos, Visa, Mastercard, or American Express.
Know This
RBA research in 2022 found the average cost to a merchant when accepting Eftpos was 0.3% of the transaction; Mastercard or Visa was 0.5% for debit and 0.9% for credit; and Amex was much higher at 1.3%.
So on a $100 pair of jeans that’s at least 30c charged by the merchant. While many businesses absorb this cost, many smaller ones might pass it on for fast-moving consumer goods such as coffees and food.
This is why it could be better to select CHQ or SAV, or make sure your smartphone wallet is going via SAV.
Least Cost Routing
Many businesses or their merchant terminals aren’t geared to operate with ‘Least Cost Routing’, or LCR. LCR saves the merchant money via routing the payment through the cheapest option, which is often Eftpos.
It also relies on the customer’s payment method initiating LCR. From September 2024, for example, Apple Pay now defaults to LCR, potentially saving the customer and merchant money.
In June 2024 the RBA conducted a review into the payments system and LCR, and found that while 99% of payments providers had made LCR available to merchants, only 70% were actually enabled. The best and worst offenders of the 10 providers reviewed are below:
|
Available to merchants |
Enabled for merchants |
|
|---|---|---|
|
Square |
100 |
100 |
|
Stripe |
100 |
98 |
|
Tyro |
100 |
83 |
|
Suncorp Bank |
100 |
73 |
|
Fiserv |
100 |
54 |
|
National Australia Bank |
100 |
52 |
|
Commonwealth Bank |
97 |
48 |
|
ANZ Worldline |
98 |
42 |
|
Westpac |
100 |
41 |
|
Adyen |
100 |
27 |
|
Total |
99 |
70 |
Pending & Settlement Times
Selecting Credit often increases the time the transaction sits in your transaction history as ‘pending’. This is because they are routed via Visa or Mastercard (or AMEX if using such a card), and the anti-fraud measures they enable.
This could be handy if you think you might need to dispute a transaction, or if you’re overseas and using a dodgy terminal or you’re not sure about the transaction.
However, for many domestic applications this can be annoying. Many savings accounts require a minimum number of settled transactions per month in the linked spending account to qualify for bonus interest. If selecting Credit towards the end of the month they might not be settled in time, and you run the risk of missing out on interest.
Article originally published by Jason Bryce in May 2019.
Head image by Blake Wisz on Unsplash
