SoFi

If you, like 80% of Americans, use credit cards, you’ve probably been hit with a convenience fee — an additional charge levied by merchants — at some point. Perhaps it was tacked on when you bought concert tickets online rather than at the box office or assessed when you paid your rent online with your plastic. Or maybe you only noticed it when reviewing your monthly bill. Whatever the case, you may well have asked yourself if this is a fair fee and how you can avoid this kind of charge in the future.

We can help! Read on to learn more about credit-card convenience fees, when and why they are charged, and whether you can avoid them.

What Is A Convenience Fee?

A convenience fee is a flat fee that’s tacked on to the cost of your transaction that you, the cardholder, are expected to pay. It is typically charged by merchants when a customer uses a credit card in a payment channel that it’s the usual one for the business. For instance, if a trade school usually accepts payments in-person and you choose to pay online, you might be assessed the additional fee for the convenience of not turning up at their place of business. A convenience fee may be either a small percentage of the transaction’s total or a flat fee charged when you use a credit or debit card with the merchant.

This fee is the result of a lawsuit between retailers and the brands (Mastercard/Visa) that was settled in January 2013. To make a long story short, the verdict permits merchants to add a surcharge when a customer uses a credit card. It helps to understand why retailers fought for this right: When merchants allow a customer to use a credit card as a payment method instead of cash or checks, they (the retailer) are charged a credit-card processing fee for the transaction. When you, the customer, receive a convenience fee, it reflects the merchant trying to offload that processing fee onto you. The convenience fee is what you pay for the “convenience” of being able to use a credit card for a transaction instead of cash or another form of payment. In some cases, a retailer will factor these fees into their business model and won’t pass along the additional charge. That is why you may notice that convenience fees strike you as somewhat random.

Example of a Convenience Fee

In general, the consumer pays a convenience fee when purchasing a product or service in an alternative way than paying in person. One example of a convenience fee is purchasing tickets for a play over the phone or online. Anyone who’s ever reserved seats for the theater knows that you often pay a lot more than the ticket price for the final purchase amount. You may be hit with a credit card convenience fee for this purchase as well as other fees! Buying a ticket in person at a ticket office for a show will often help you avoid convenience fees.

Another example of these convenience fees at work can be found at the gas station. When you fill up your tank, you may notice that the price for gas is about $0.10 cheaper per gallon if you pay with cash than with a credit card.

Why Do Convenience Fees Exist?

Many credit card holders already get hit with an annual fee and monthly interest fees; so why do you have to pay even more money for using plastic as a payment method? The main reason you’re getting stuck with these convenience fees is because the merchants have to pay processing fees to payment networks. The payment networks or payment processors work with the financial institutions that issue your cards (like SoFi), and the card network (Visa, Mastercard, Discover, American Express) to make sure the transaction is secure and processed smoothly. The bank that issues the cards often charges the merchant a fee for allowing them to accept this card – a credit card processing fee. Sometimes, payment networks also charge the merchant a fee. Often, credit-card processing fees cost the merchants between 2% and 4% per transaction. That’s why the merchant might pass those fees on to you, the consumer, as a convenience fee.

This is also another reason some small businesses may not accept credit cards at all: They don’t want to have to pay the fees associated with taking them or pass them on to you.Other merchants choose not to accept certain credit cards, like Discover or American Express, since those companies tend to collect higher fees per purchase.

Credit Card Company Rules on Convenience Fees

Here’s the breakdown for how some of the major credit-card brands handle fees.

Brand	Rules for Merchants on Convenience Fees
Visa	Merchants can add convenience fees on all nonstandard payment methods, except for income tax payments in some states. Retailers are required to register the surcharge with the payment network. They must also display a notice of the surcharge at the point of sale — both in-store and online. You’ll usually see the additional fee on your receipt.
Mastercard	Only select government agencies and educational institutions can charge credit card convenience fees. Retailers must register the surcharge with their payment network. They must also display a message about the surcharge at the point of sale — both in-store at the checkout and online. You’ll usually see the additional fee on your receipt as well.
American Express	Only government agencies, educational institutions, utility companies, and rental companies can charge credit-card convenience fees.
Discover	The retailer cannot charge convenience fees to Discover cardholders unless it charges the same fees to those using credit cards from other card issuers.

Convenience Fees vs Surcharge Fees: What’s the Difference?

When thinking about the additional charges you wind up paying, you may have wondered what the difference between convenience fees and surcharge fees are. Let’s explain.

A surcharge fee covers the cost of you having the privilege of using a credit card. It’s added before taxes. Sometimes called a “checkout fee,” it is usually a percentage of the sale and it’s optional for the merchant to add a surcharge fee onto a transaction. Each specific credit card company has rules about surcharge fees.

Credit card surcharges are prohibited by law in 10 states. If you’re a merchant doing business in Colorado, Utah, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas, you’re not allowed to add a surcharge to a purchase. So if you’re a customer in those states and paying with a credit card, you might be able to avoid some additional fees.

In comparison, a convenience fee covers the cost of doing a transaction with a credit card instead of another payment method. Sometimes this is charged as a percentage of the transaction. Other times, it is charged as a flat fee, regardless of the cost of the products or services purchased. A retailer might add $3 to $5 to the transaction completed with a credit card, regardless of what or how much was purchased.

How Can Convenience Fees Be Avoided?

When you’re trying to avoid credit card convenience fees, you can choose to pay with a method other than plastic, such as cash, check, or money orders at some merchants. For example, if you’re paying for college tuition, you might be able to set up an online payment using an electronic check, money order, or personal check. At some schools, this could save you nearly 3% per payment transaction. If one semester of college tuition was $5,000, avoiding a convenience fee charge could save you about $150.

That being said, if you have a high-rewards credit card, conducting an expensive transaction might be beneficial if you can get cash back.

So, it’s important to scan for notices about convenience fees. When making a purchase at a bricks and mortar location, look at the point of entry and at the checkout area to see if they have messages posted about surcharges or convenience fees. You could always ask before purchasing a product or service if paying by cash will save you money. This often works well in service businesses. If you’re paying someone to install or service an appliance in your home, for example, paying with cash could save you a chunk of money if it allows you to avoid fees. If you are purchasing something online, look carefully at the charges before hitting “purchase.” Credit card fees are fairly common today, so you want to be alert to how they can crop up – and avoid them when you can!

The Takeaway

Knowing that credit card convenience fees (and surcharge fees) exist, whether they are legal in your state, and how to avoid them can help save you money in the long run. Oftentimes, these fees are added at the merchant’s discretion, and you may — with a little sleuthing and a work-around or two — be able to avoid them. Using a credit card can be an expensive proposition, so it’s good to know how you can trim some of these additional charges. Using cash or a check can sometimes be the most economical path forward.

Get Money-Smart With SoFi Checking and Savings

Avoiding additional fees and paying you interest for the privilege of holding your money are two benefits SoFi can offer you! With our online checking and savings accounts, eligible accounts will pay no account or overdraft fees, plus you’ll earn a competitive APY.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

---

Photo credit: iStock/blackCAT

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOMN0821069

Read more

A short put spread, sometimes called a bull put spread or short put vertical spread, is an options trading strategy that investors may use when they expect a slight rise in an underlying asset. This strategy allows an investor to potentially profit from an increase in the underlying asset’s price while also limiting losses. An investor may utilize this strategy to protect against any downside risk; the investor will know their total potential loss before making the trade.

When trading options, you have various strategies, like short put spreads, from which you can choose. The short put spread strategy can be a valuable trade for investors with a neutral-to-bullish outlook on an asset. Which options trading strategy is right for you will depend on several factors, like your risk tolerance, cash reserves, and perspective on the underlying asset.

What Is a Short Put Spread?

A short put spread is an options trading strategy that involves buying one put option contract and selling another put option on the same underlying asset with the same expiration date but at different strike prices. This strategy is a neutral-to-bullish trading play, meaning that the investor believes the underlying asset’s price will stay flat or increase during the life of the trade.

A short put spread is a credit spread in which the investor receives a credit when they open a position. The trader buys a put option with a lower strike price and sells a put option with a higher strike price. The difference between the price of the two put options is the net credit the trader receives, which is the maximum potential profit in the trade.

The maximum loss in a short put spread is the difference between the strike prices of the two puts minus the net credit received. This gives the trading strategy a defined downside risk. A short put spread does not have upside risk, meaning the trade won’t lose money if the price of the underlying asset increases.

A short put spread is also known as a short put vertical spread because of how the strike prices are positioned — one lower and the other higher — even though they have the same expiration date.

How Short Put Spreads Work

With a short put spread, the investor uses put options, which give the investor the right — but not always the obligation — to sell a security at a given price during a set period of time.

An investor using a short put spread strategy will first sell a put option at a given strike price and expiration date, receiving a premium for the sale. This option is known as the short leg of the trade.

Simultaneously, the trader buys a put option at a lower strike price, paying a premium. This option is called the long leg. The premium for the long leg put option will always be less than the short leg since the lower strike put is further out of the money. Because of the difference in premiums, the trader receives a net credit for setting up the trade.

💡 Recommended: In the Money vs Out of the Money Options

Short Put Spread Example

Say stock ABC is trading around $72. You feel neutral to bullish toward the stock, so you open a short put spread by selling a put option with a $72 strike price and buying a put with a $70 strike. Both put options have the same expiration date. You sell the put with a $72 strike price for a $1.75 premium and buy the put with a $70 strike for a $0.86 premium.

You collect the difference between the two premiums, which is $0.89 ($1.75 – $0.86). Since each option contract is usually for 100 shares of stock, you’d collect an $89 credit when opening the trade.

Recommended: Guide to How Options Are Priced

Maximum Profit

The credit you collect up front is the maximum profit in a short put spread. In a short put spread, you achieve your maximum profit at any price above the strike price of the option you sold. Both put options expire worthless in this scenario.

In our example, as long as stock ABC closes at or above $72 at expiration, both puts will expire worthless and you will keep the $89 credit you received when you opened the position.

Maximum Loss

The maximum loss in a short put spread is the difference between the strike prices of the two put options minus the credit you receive initially and any commissions and fees incurred. You will realize the maximum loss in a short put spread if the underlying asset’s price expires below the strike price of the put option you bought.

In our example, you will experience the maximum loss if stock ABC trades below $70, the strike price of the put option you bought, at expiration. The maximum loss will be $111 in this scenario, not including commissions and fees.

$72 – $70 – ($1.75 – $0.86) = $1.11 x 100 shares = $111

Breakeven

The breakeven on a short put spread trade is the price the underlying asset must close at for the investor to come away even; they neither make nor lose money on the trade, not including commissions and investment fees.

To calculate the breakeven on a short put spread trade, you subtract the net credit you receive upfront from the strike price of the short put contract you sold, which is the option with the higher strike price.

In our example, you subtract the $0.89 credit from $72 to get a breakeven of $71.11. If stock ABC closes at $71.11 at expiration, you will lose $89 from the short leg of the trade with a $72 strike price, which will be balanced out by the $89 cash credit you received when you opened the position.

Set-Up

To set up a short put spread, you first need to find a security that you are neutral to bullish on. Once you have found a reasonable candidate, you’ll want to set it up by entering your put transactions.

You first sell to open a put option contract with a strike price near where the asset is currently trading. You then buy to open a put option with a strike price that’s out-of-the-money; the strike price of this contract will be below the strike price of the put you are selling. Both of these contracts will have the same expiration date.

Maintenance

The short put spread does not require much ongoing maintenance since your risk is defined to both upside and downside.

However, you may want to pay attention to the possibility of early assignment, especially with the short leg position of your trade — the put with the higher strike price. You might want to close your position before expiration so you don’t have to pay any potential assignment fees or trigger a margin call.

Exit Strategy

If the stock’s price is above the higher strike price at expiration, there is nothing you have to do; the puts will expire worthless, and you will walk away with the maximum profit of the credit you received.

If the stock’s price is below the lower strike price of the long leg of the trade at expiration, the two contracts will cancel each other, and you will walk away with a maximum loss.

Before expiration, however, you can exit the trade to avoid having to buy shares that you may be obligated to purchase because you sold a put option. To exit the trade, you can buy the short put contract to close and sell the long put contract to close.

Impacts of Time, Volatility, and Price Change

Changes in the price and volatility of the underlying stock and the passage of time can affect a short put spread strategy in various ways.

Time

Time decay will generally work in favor of the short put spread. As both of the legs of the short put spread get closer to the expiration, any time value that the option contracts have will erode.

Volatility

The short put spread is more or less volatility neutral. Because you are both long and short one put option contract each, volatility in the underlying stock similarly affects each leg of the contract.

Price

A short put spread is a bullish option strategy. You have no risk to the upside and will achieve your maximum profit if the underlying stock closes above the strike price of the higher put option. You are sensitive to price decreases of the underlying stock and will suffer the maximum loss if the stock closes below the strike price of the lower put option.

Pros and Cons of Short Put Spreads

Here are some of the advantages and disadvantages of using short put spreads:

Short Put Spread Pros	Short Put Spread Cons
No risk to the upside	Lower profit potential compared to buying the underlying security outright
Limited risk to the downside; maximum loss is known upfront	Maximum loss is generally larger than the maximum potential profit
Can earn a positive return even if the underlying does not move significantly	Difficult trading strategy for beginning investors

Short Put Calendar Spreads

A short put calendar spread is another type of spread that uses two different put options. With a short put calendar spread, the two options have the same strike price but different expiration dates. You sell a put with a further out expiration and buy a put with a closer expiration date.

Alternatives to Short Put Spreads

Short put vertical spreads are just one of the several options spread strategies investors can use to bolster a portfolio.

Bull Put Spreads

A bull put spread is another name for the short put spread. The short put spread is considered a bullish investment since you’ll get your maximum profit if the stock’s price increases.

Bear Put Spread

As the name suggests, a bear put spread is the opposite of a bull put spread; investors will implement the trade when they have a bearish outlook on a particular underlying asset. With a bear put spread, you buy a put option near the money and then sell a put option on the same underlying asset at a lower strike price.

Call Spreads

Investors can also use call spreads to achieve the same profit profile as either a bull put spread or a bear put spread. With a bull call spread, you buy a call at one strike price (usually near or at the money) and simultaneously sell a call option on the same underlying with the same expiration date further out of the money.

The Takeaway

A short put spread is an options strategy that allows you to collect a credit by selling an at-the-money put option and buying an out-of-the-money put with the same expiration on the same underlying security. A short put spread is a bullish strategy where you achieve your maximum profit if the stock closes at or above the strike price of the put option you sold. While this trading strategy has a limited downside risk, it provides a lower profit potential than buying the underlying security outright.

Short put spreads and other options trading strategies can be complicated for many investors. An options trading platform like SoFi’s can make it easier, thanks to its user-friendly design and offering of educational resources about options. Investors have the ability to trade options from the mobile app or web platform.

Trade options with low fees through SoFi.

FAQ

Is a short put spread bullish or bearish?

A short put spread is a neutral to bullish options strategy, meaning you believe the price of an underlying asset will increase during the life of the trade. You will make your maximum profit if the stock closes at or above the strike price of the higher-priced option at expiration.

How would you close a short put spread?

To close a short put spread, you enter a trade order opposite to the one you entered to open your position. This would mean buying to close the put you initially sold and selling to close the put you bought to open.

What does shorting a put mean?

Shorting a put means selling a put contract. When you sell a put option contract, you collect a premium from the put option buyer. You’ll get your maximum profit if the underlying stock closes at or above the put’s strike price, meaning it will expire worthless, allowing you to keep the initial premium you received when you opened the position.

---

Photo credit: iStock/akinbostanci

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
SOIN0322021

Read more