While new penny production is set to cease in early 2026, existing pennies will remain legal tender. For consumers, the main change will be the rounding of cash transactions to the nearest nickel. This shift will particularly affect those who rely heavily on cash, while electronic payments will be unaffected.
What to expect during the transition?
- Cash rounding: After new pennies are phased out, businesses will round cash totals to the nearest five cents.
- Examples of rounding: A cash purchase of $19.82 would round down to $19.80, while a purchase of $19.83 would round up to $19.85.
- Offsetting costs: Some studies suggest that the costs of rounding up may be offset by rounding down, leading to a negligible impact on consumers overall.
- Disproportionate impact on cash users: Consumers who are unbanked or underbanked and rely on cash for daily purchases will be most affected by the rounding.
- Shift in pricing strategy: Retailers may change their traditional pricing strategy, moving away from amounts ending in .99 (e.g., $4.99) toward more rounded values (e.g., $5.00).
- No immediate disappearance: The estimated 114 billion pennies already in circulation will continue to be used and accepted. Their numbers will only slowly decline as they are lost, damaged, or absorbed back into the banking system.
- Banking options: Banks will continue to accept pennies for deposits. Existing pennies will not be taken out of circulation and will still be accepted by banks and businesses for an indefinite period. Only Congress has the authority to fully eliminate a form of currency.
What to do with your pennies?
- Spend them: You can continue to use your pennies for everyday cash purchases, and most businesses are likely to accept them. As the supply of pennies dwindles over time, retailers will eventually transition to rounding.
- Cash them in: Banks and credit unions will accept pennies for deposit or exchange, though some may require them to be rolled.
- Keep them for nostalgia: You may simply want to hold on to a few as keepsakes, marking the end of a long-standing tradition.
Why the penny is being phased out?
The primary driver for the phase-out is economic inefficiency, a decades-long issue.
- Cost of production: In fiscal year 2024, it cost 3.69 cents to produce a single one-cent coin, resulting in an $85.3 million loss for the U.S. Mint.
- Declining cash usage: In an economy increasingly reliant on electronic payments, the need for physical currency is diminishing. The Federal Reserve reported that only 14% of payments were made in cash in 2024.
- Low purchasing power: Inflation has eroded the penny's value to the point that it is virtually useless for transactions. Many people simply hoard or discard pennies, meaning more must be produced to replace them.
- Environmental impact: Production of pennies, which are primarily made from zinc, involves mining and transportation that have an environmental cost.