A Canadian penny dissolving into a grocery store receipt, illustrating the hidden costs of rounding.

Is Penny-Pinching Pointless? The Hidden Costs of Canada's Rounding System

Soraya Malik in Business & Economy August 2025 • 4 min read.

"Uncover the surprising economic impact of eliminating the penny in Canada and how it affects your grocery bill."

In 2012, the Royal Canadian Mint made a monumental decision: it ceased the distribution of pennies. The introduction of a nearest-nickel rounding scheme was intended to simplify cash transactions, but has it truly made things simpler, or has it opened a Pandora’s Box of unintended financial consequences?

The theory behind the rounding system seems fair enough. When you pay with cash, the final amount is rounded to the nearest five cents. Amounts ending in 1, 2, 6, or 7 round down, while those ending in 3, 4, 8, or 9 round up. In theory, this should balance out over time, with no one really gaining or losing.

However, a study has revealed that rounding doesn’t always play out as expected. Instead, it appears to financially benefit businesses at the expense of consumers. This article will cover the surprising economic impact of Canada’s penny-rounding system, and what it means for your day-to-day spending.

The Penny Problem: How Rounding Skews the Financial Scales

A Canadian penny dissolving into a grocery store receipt, illustrating the hidden costs of rounding.

At first glance, the nearest-nickel rounding system appears neutral. It’s based on the assumption that all final digits (0-9) have an equal chance of appearing in a transaction. However, real-world pricing strategies often disrupt this balance. Stores frequently price items ending in ‘9’ because it psychologically signals a bargain to consumers.

Due to the potential skew in the distribution of final digits, there is a high possibility that consumers get a raw deal. When the final digit is skewed, this creates an opportunity for retailers or consumers to experience more systematic gains or losses from the system.

Skewed Prices: Many prices end in ‘9,’ meaning they’re more likely to round up.
Losses in Small Transactions: Consumers frequently lose out on one- and two-item purchases.
Tax Impact: Provincial sales taxes can exacerbate the effects of rounding, depending on the items purchased.

Despite the good intentions behind it, the rounding system has a real-world monetary impact. The study revealed a net transfer of approximately $3.27 million CAD annually from consumers to grocery vendors. For an individual store, this can add up to around $157 in additional revenue each year.

The Bigger Picture: Are We Really Saving Money?

While the Royal Canadian Mint estimated savings of $11 million per year by phasing out the penny, those savings are dampened for consumers due to unfair rounding practices. The seemingly insignificant rounding tax adds up, affecting the finances of everyday Canadians. As more countries consider phasing out low-denomination coins, it's crucial to evaluate the microeconomic effects of rounding to ensure it doesn't disproportionately burden consumers.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: 10.1007/s11293-018-9584-8, Alternate LINK

Title: Eliminating The Penny In Canada: An Economic Analysis Of Penny-Rounding On Grocery Items

Subject: General Economics, Econometrics and Finance

Journal: Atlantic Economic Journal

Publisher: Springer Science and Business Media LLC

Authors: Christina Cheung

Published: 2018-06-01

Everything You Need To Know

Why did the Royal Canadian Mint eliminate the penny?

The Royal Canadian Mint ceased distribution of the penny in 2012. The primary reason was to simplify cash transactions by introducing a nearest-nickel rounding scheme. This move was intended to streamline the process and potentially reduce costs associated with the production and handling of pennies.

How does the nearest-nickel rounding system work in Canada?

In Canada's nearest-nickel rounding system, the final amount of a cash transaction is rounded to the nearest five cents. Amounts ending in 1, 2, 6, or 7 round down, while amounts ending in 3, 4, 8, or 9 round up. This system is designed to eliminate the need for pennies in cash transactions, thus simplifying the process.

What is the financial impact of the rounding system on consumers?

The rounding system in Canada has a real-world monetary impact on consumers. The study revealed a net transfer of approximately $3.27 million CAD annually from consumers to grocery vendors. Consumers are likely to experience losses, particularly in small transactions because of the price skewing of items ending in '9'.

Do pricing strategies affect the outcome of the rounding system?

Yes, pricing strategies significantly influence the effects of rounding. Retailers often price items ending in ‘9’ to create a psychological signal of a bargain. This strategy skews the distribution of final digits, leading to a higher probability of prices being rounded up, which financially benefits businesses at the expense of consumers.

Besides consumers, who else is affected by the rounding system, and how?

The rounding system primarily affects consumers and businesses. Businesses, particularly grocery vendors, are the main beneficiaries of the rounding system. They experience increased revenue, with an estimated $157 in additional revenue per year. Also, the government, like the Royal Canadian Mint, benefits from the cost savings of no longer producing pennies.