Since 1909, the penny has been embossed with the likeness of Abraham Lincoln. As time has gone on and inflation has caused the penny to continue to lose value, there have been debates about discontinuing the United States’ smallest currency.
The debate is now over, however. Starting in 2026, the U.S. Mint will no longer make the penny. The end of the penny will impact individual consumers and businesses, but perhaps its greatest impact will be on financial institutions across the Northeast and the rest of the country. If you work in a bank or in finance, you should be prepared for this change.
Understanding why the penny is being discontinued and how that will affect both the economy and your financial institution will allow you to make these necessary preparations.
Why Is Penny Minting Stopping in 2026?
The decision to end the penny came from a mixture of economics and simple practicality. The U.S. Mint’s 2024 Annual Report states that a penny costs 3.69 cents to mint and distribute into circulation. This means if the government mints $1 million in pennies, it must spend almost $4 million to do so. This means that millions of dollars of taxpayer money are wasted each year just to keep a nearly obsolete coin in circulation. Lawmakers eventually decided that it was no longer worthwhile to continue minting pennies at this cost, especially considering their very limited contribution to the economy.
Additionally, the demand for pennies has been in decline for decades. The modern economy is increasingly coinless, and physical coins are not used as frequently as they once were. Aside from the economic impacts, discontinuing the penny makes common sense: Why mint a coin that most people don’t use?
What Does the End of the Penny Mean for the Economy?
The end of penny production will have economic effects. Some of these will be beneficial, others will simply be adjustments. Here are a few of the bigger implications:
Cost Savings for the Government
According to the U.S. Mint, the Treasury lost $85.3 million by minting pennies in 2024. This is all taxpayer money that can be redirected to other services.
Rounding Rules for Transactions
In a post-penny world, all cash transactions will be rounded to the nearest five cents. While this may sound like a major shift, many countries have already eliminated their small currencies with little disruption. And theoretically, if some prices are rounded up and down equally, it should not have any effect on an individual’s finances. However, in some cases, when rounding up occurs in high frequency, it results in overall increased costs—what is known as a “rounding tax.”
Minor Inflation Concerns
Should such a “rounding tax” occur, there is some concern that it could lead to inflation. But in countries that have eliminated their lowest currencies, any negative inflation effects have been temporary and evened out over time.
Changes in Coin Demand
As the penny exits circulation, demand for other coinage will increase. The most notable shift would be the demand for nickels, the next lowest coin. Considering that nickels, like pennies, cost more to mint than they’re worth, this increase in demand would offset some of the expected government savings. It will also affect financial institutions, which will need to anticipate changes in coin inventory, storage, and distribution.
How the End of the Penny Impacts Banks and Financial Institutions
Banks across the country will have to adapt their operational practices once the penny is retired. This transition will not be overnight, as pennies will continue to be in circulation for some time, but financial institutions have to plan for changes in the following areas:
Coin Management and Inventory
The coin supply will have to be adjusted based on new customer demand. With the penny gone, there will be an increased need for the next smallest denominations—nickels and dimes. Financial institutions should account for this increased demand ahead of time to have enough coinage on hand. Working with cash management providers such as Shields will ensure that your cash supply is always there when you need it.
Vault Storage and Logistics
You will no longer need to make room for pennies in your vault, but an increased demand for nickels—which are physically larger than pennies—will likely take up this space. For optimal security, circulation, and use of vault space, financial institutions need to practice efficient vault management.
Customer Communication
It’s important to convey to customers how this change will affect them, both financially and at the cash registers. As consumers will continue to have and use pennies for years to come, they might be confused about what rounding is, how it works, and what they should be expecting from their banks and vendors. Providing them with clear messaging will help them through this transition period.
Preparing for a Penny-Free Future with Shields
The end of the penny may seem like the beginning of the end of cash, but it really marks a shift towards a more efficient financial system.
By partnering with Shields Business Solutions, financial institutions in Pennsylvania, New Jersey, New York, and Delaware can not only be prepared for this change, but also benefit from it through smoother and more efficient banking operations. Shields can assist with:
Cash Management Services. Shields can help handle the changing demands for new coins. As penny circulation ends, you will need a flexible and reliable cash management provider to keep up with the changes.
Vault Services. Shields’ vault management services keep your vaults operational and help to optimize storage space. Stay ahead of your changing inventory needs while maintaining the security of your cash.
Coin Wrapping. Shields offers coin wrapping services to help you maintain an accurate and stable cash supply for your customers. As your coinage needs shift, your wrapping needs will shift with them.
Cash-in-Transit Services. Shields’ cash-in-transit services ensure that you will receive the coins you need safely and on time.
While the economy is changing, the role of cash continues to be important to businesses and financial institutions. Contact Shields Business Solutions today for more information about our secure ATM/ITM managed services, cash management, and cash in transit services. And don’t forget to subscribe to our blog for the latest articles and newsletters!
