No More Pennies? Here’s How the Phaseout Will Affect Cash, Banking, and Payments

If you’ve been noticing fewer pennies in your pockets lately, it’s not your imagination. The U.S. Treasury has officially begun phasing out the penny, with production expected to end entirely by early 2026. After more than 160 years in circulation, the country’s smallest coin is finally stepping off the stage.

With more than 114 billion pennies currently in circulation, the government determined that it's time to stop producing new ones due to rising costs, stagnant circulation, and the increasing shift toward digital payments.

While it may seem like a tiny change, there will be meaningful ripple effects for cash transactions, banks, and even your day-to-day budgeting.

Why Is the Penny Going Away?

Over the last decade, the cost of making a penny has become more expensive than the penny is actually worth. Combine that with slowing circulation and a national move toward electronic payments, and the math simply no longer supports keeping the penny in production.

As inventories shrink, the Federal Reserve has already begun limiting penny distribution at certain regional centers. Some distribution sites (including locations in Minnesota) have suspended penny orders as their supplies deplete.

How Will Prices and Payments Change?

Here’s the part most people are curious about: Will things get more expensive?

According to experts, most retailers are expected to use a standard rounding rule when handling cash purchases without pennies:

• Ending in 1, 2, 6, or 7 cents → rounded down
• Ending in 3, 4, 8, or 9 cents → rounded up
• Ending in 0 or 5 cents → no rounding

This rounding applies only to cash transactions. Digital transactions (e.g. debit cards, credit cards, online payments, ACH, and mortgage payments) still settle to the exact cent.

It’s estimated that rounding could cost consumers an average of a few dollars per year, which should be more of an inconvenience than a major financial hardship.

What This Means for Luminate Bank Customers

As a digital-first bank, most of the way our customers move money won’t feel any different. But as the country transitions away from pennies, here are a few things you may notice over time and how Luminate Bank will help keep everything smooth and predictable.

1. Cash transactions may eventually round to the nearest nickel.

If and when rounding becomes the standard across retailers and financial institutions, you may see small adjustments on cash-only transactions. Digital payments (like debit cards, mobile wallets, and online banking) will continue to settle to the exact cent.

We’ll share updates if any rounding practices become necessary in our branches.

2. Changes in coin availability will vary by region.

Some Federal Reserve distribution centers have already begun limiting penny orders as inventories decline nationwide. This may mean that penny rolls become harder to get across the banking industry, not just at Luminate.

We’ll monitor supply at the national and local level and keep customers informed if availability changes.

3. Digital payments continue to offer a seamless alternative.

Because electronic payments are not affected by rounding, more customers may choose tap-to-pay, online transfers, or debit card purchases. As a digital-forward bank, we’ll continue expanding and improving these tools to make managing money simple, pennies or no pennies.

4. We’ll communicate clearly before anything changes.

Whether the shift happens gradually or quickly, we’ll use email, website updates, social posts, and branch signage to help customers understand what’s changing, why it’s happening, and what it means for their day-to-day banking.

What This Means for Mortgage Customers

The good news: your mortgage world doesn’t change much.

For mortgage customers (buyers, homeowners, and real estate professionals), the penny phaseout has very minimal impact. But here’s what you should know as the national transition continues:

1. Your mortgage payments won’t change.

Mortgage payments, escrow totals, and statements are calculated down to the exact cent. Even if pennies disappear from circulation, mortgage servicing systems, ACH withdrawals, and online payments will still reflect precise amounts.

2. Closing costs, disclosures, and settlement statements remain exact.

Real estate transactions are governed by strict federal accuracy requirements, meaning lenders and title companies can’t round numbers for convenience. All closing documents (including the Loan Estimate and Closing Disclosure) will continue to use precise totals, even as small coins become less common.

3. Cash interactions during closing may look slightly different.

In the rare instances where cash is exchanged in person, like with small adjustments or reimbursements, nearest-nickel rounding could eventually apply industry-wide. Most title companies already prefer certified funds, so the practical impact for buyers and sellers will be minimal.

4. Digital payments keep everything simple.

Most mortgage customers already pay online or via auto-draft, and nothing changes there. As a digital-first bank, we’ll continue investing in tools that help you manage payments, documents, and communication without worrying about rounding or coin availability.

5. We’ll stay aligned with industry guidance and keep you updated.

Luminate Bank remains plugged into federal, state, and industry updates as the penny phaseout moves forward. If there are any mortgage-specific recommendations from regulators, we’ll evaluate them carefully and communicate clearly with our customers and partners.

What Businesses Should Know

If you’re a business owner, especially one that takes cash, guidance from the Federal Reserve suggests preparing now:

• Train staff on rounding rules
• Prepare a brief explanation for customers
• Promote digital payments to avoid rounding altogether
• Monitor your coin inventory as penny supply varies by region

What’s Next?

As the penny phaseout continues nationwide, one thing won’t change: our commitment to keeping you informed, empowered, and prepared for whatever comes next.

We expect more updates from the Treasury and Federal Reserve throughout 2025 as inventories decline and rounding becomes more common. For now, there’s nothing customers need to do; just know the penny is on its way out, and we’ll help make the transition smooth and predictable.

You can count on us to help you navigate this transition with confidence—pennies or no pennies.