What Square does with your payment

When you swipe, tap, or enter a card at a Square reader, Square captures the transaction and routes it through the card networks — Visa, Mastercard, American Express, Discover — to your customer's bank. Square then holds the funds in a holding account before depositing them into your business bank account, usually within one to two business days. The money does not go directly from the customer to you; it passes through Square's systems, where fees are deducted and the remainder is sent forward.

Square makes money by taking a percentage of each transaction, plus a small flat fee per transaction. For card-present payments (in-person with a reader), this is typically 2.6% plus 10 cents. For online payments through Square Online or invoices, the rate is 2.9% plus 30 cents. These fees come out before the deposit hits your bank account, so if a customer pays $100, you see less than $100 arrive.

The timing and the fees are the two things you need to understand about how Square moves money. Everything else — the security, the routing through card networks, the compliance — happens in the background and is the same whether you use Square, Stripe, PayPal, or another processor.

Key Takeaways

  • Square deducts its processing fee from each transaction before depositing the remainder into your business bank account, so you receive less than the customer paid.
  • Standard deposits arrive one to two business days after the transaction, though Square can hold funds longer if it flags a transaction as high-risk.
  • The fee structure varies by how you accept payment: in-person card readers cost 2.6% plus 10 cents, while online payments and invoices cost 2.9% plus 30 cents.
  • Square holds a small reserve from your deposits for the first 120 days of your account, which it releases gradually as your transaction history builds.
  • If a customer disputes a charge, Square reverses the deposit and may charge you a chargeback fee, which you can contest if you have proof of delivery or service.

How Square's fee structure works

Card-present transactions — payments made in person with a Square reader — cost 2.6% of the transaction amount plus 10 cents. If a customer pays $50 in person, Square takes $1.40 (2.6% of $50) plus 10 cents, leaving you $48.50. This rate applies whether the customer uses a credit card, debit card, or contactless payment like Apple Pay or Google Pay.

Card-not-present transactions — payments made online, by phone, or through a Square invoice — cost 2.9% plus 30 cents. An online order for $50 costs you $1.75 (2.9% of $50) plus 30 cents, leaving you $47.95. Square charges more for these because the card networks charge Square more; without the physical card present, the fraud risk is higher from the network's perspective, and that cost passes to you.

Square also offers a flat-rate plan called Square Flat Rate, which is 2.75% for all card transactions regardless of how they are processed. This can save money if you do a mix of in-person and online sales, but it costs more than the standard in-person rate if you primarily use a reader.

ACH transfers (bank-to-bank payments) and cash payments have no Square fee, though ACH transfers may incur a fee from your bank. Square does not process cash, so if a customer pays cash, you collect it yourself and Square is not involved.

When the money actually reaches your bank account

Square deposits funds into your linked business bank account on a schedule that depends on when the transaction occurred and whether Square has flagged it. For most transactions, the deposit arrives one to two business days after the payment is made. A payment on Monday typically arrives Wednesday; a payment on Friday typically arrives Monday.

Square may hold funds longer — up to seven business days — if it detects patterns it considers higher-risk: large transactions, many refunds, chargebacks, or activity that does not match your account history. You can see the expected deposit date in your Square Dashboard under the Transactions tab; if a deposit is delayed, the reason usually appears there as well.

During your first 120 days as a Square customer, Square also holds a small reserve. It deposits your money on the normal schedule, but sets aside a percentage (usually 5% to 10%) and releases it gradually as your account history builds. This reserve protects Square against fraud or chargebacks early in your relationship. After 120 days, this reserve is released in full.

Weekends and holidays do not count as business days. A payment made on Friday evening may not arrive until Tuesday, because Saturday and Sunday do not move the clock forward.

What happens when a customer disputes a charge

If a customer contacts their bank and says they did not recognize the charge or did not receive what they paid for, the bank initiates a chargeback. Square reverses the deposit — the money goes back to the customer's bank — and charges you a chargeback fee, which is typically $15. You now owe Square $15 even though you never received the original payment.

You can contest the chargeback by providing evidence to Square: a signed receipt, a tracking number showing delivery, an email confirmation from the customer, or a photo of the service you provided. Square forwards your evidence to the customer's bank, which decides whether to uphold or reverse the chargeback. If you win, the original payment is re-deposited and the chargeback fee is waived. If you lose, you keep the $15 fee and the payment stays reversed.

Chargebacks are different from refunds. A refund is when you choose to return the customer's money — you initiate it in your Square Dashboard, and the money goes back to the customer's card. A chargeback is when the customer's bank forces the reversal without your consent. Refunds do not incur a fee; chargebacks do.

If you receive many chargebacks in a short period, Square may freeze your account or require you to pay a higher reserve. This is Square's protection against fraud or systematic customer disputes.

How Square protects itself and what that means for you

Square holds reserves and delays deposits partly to cover its own costs if chargebacks or fraud occur. The card networks — Visa, Mastercard, American Express — also require payment processors to maintain reserves and follow specific rules about which transactions they can accept. Square is following network rules, not making up its own policy.

Square also uses fraud detection software that flags transactions based on patterns: a $5,000 purchase from a new customer, multiple declined cards in a row, or a transaction that does not match your typical sales pattern. If a transaction is flagged, Square may hold the deposit longer or ask you for more information about your business before releasing it.

You cannot opt out of these protections. They are built into how payment processing works. What you can do is keep good records — receipts, invoices, tracking numbers, customer emails — so that if a chargeback happens, you have evidence to contest it.

Comparing Square to other payment processors

Square's in-person rate of 2.6% plus 10 cents is competitive with Stripe (2.7% plus 5 cents for in-person) and PayPal (2.99% plus 30 cents for in-person). For online payments, Square's 2.9% plus 30 cents matches PayPal and is slightly higher than Stripe's 2.9% plus 30 cents for online. The differences are small enough that the choice usually comes down to features, customer support, and integration with your other tools rather than fees alone.

Deposit timing is similar across processors: most offer one to two business day deposits as standard, with the option to pay for faster deposits (Square offers next-day deposits for an additional fee). Chargeback fees are also standard — most processors charge $15 to $25 per chargeback.

The main difference between processors is what they offer beyond payment processing. Square includes a free point-of-sale system, invoicing, and basic accounting reports. Stripe is more developer-friendly and better for custom integrations. PayPal is the most widely recognized brand. For most small businesses, the processor choice matters less than understanding how fees and deposits work with whichever one you choose.

Frequently Asked Questions

Why does Square hold money for 120 days when I first sign up?

Square holds a reserve during your first 120 days to protect itself against fraud or chargebacks before it has a track record of your business. This is standard practice across payment processors. The reserve is usually 5% to 10% of your deposits and is released gradually as your account history builds. After 120 days, the full reserve is released.

Can I get my money faster than one to two business days?

Yes. Square offers next-day deposits for an additional fee, typically 1% of the deposit amount. You can turn this on in your Square Dashboard under Settings. Some business accounts also have access to same-day deposits, though this varies by account type and bank.

What does Square do with my customer's card information?

Square does not store full card numbers on your device or in your account. When a customer swipes or taps, the reader encrypts the card data and sends it directly to Square's find servers. Square then tokenizes the card — converts it to a unique code — so that future payments can be processed without storing the actual card number. This is required by the card networks and protects both you and your customers.

If a customer pays with a debit card, does Square take the same fee?

Yes. Square charges 2.6% plus 10 cents for in-person debit card payments, the same as credit cards. The card networks treat debit and credit the same way for processing purposes, so the fee is identical.

What happens if I refund a customer after Square has already deposited the money?

The refund comes out of your next deposit. If you refund a $50 payment and your next deposit is $200, Square sends you $150 instead. The refund is processed back to the customer's card within one to three business days, depending on their bank.