The Cost to Make a Nickel: Expense vs. Face Value

Key takeaways

1. In 2024, the US Mint incurred a loss of $17.7 million from producing nickels, as each nickel costs almost 14 cents to make. This loss was a reduction from the $92.6 million loss in 2023.
2. The purchasing power of a nickel has significantly decreased over time. In 1950, a nickel had the equivalent purchasing power of approximately $0.65, highlighting the impact of inflation on its value.
3. The material and production process account for about 80.5% of the total cost to make a nickel, which is approximately 11 cents.

The penny is not the only American coin that costs more than its face value to make. The nickel is also in that category. In the latest report from the US Mint, the five-cent piece now costs the Mint almost 14 cents to make.

In 2024, the US Mint lost $17.7 million while producing nickels between the cost of production and the revenue generated by their sale/exchange. Amazingly, this loss was a bit of good news – in 2023, the Mint bore losses totaling $92.6 million for nickels.

Nickel also doesn’t have anywhere near the purchasing power that it used to have. In 1950, a nickel was worth the equivalent of approximately $0.65!

While the cost to produce the penny is now drawing the attention of the federal government, the nickel does not seem to have the same level of priority at the moment. So, while the nickel is still part of daily life, let’s discuss what goes into its production, along with considerations about its present and future.

The Nickel Production Process

Despite their name, modern nickels are mostly made of copper. In fact, the US Mint uses cupronickel, which is an alloy with 75% copper and 25% nickel. It is the same alloy used to produce dimes and quarters, although both of these coins have solid copper cores that push the alloy percentage more heavily toward the copper side.

Unlike every other American coin, however, the nickel has not changed its composition since the Civil War era. Though earlier five-cent pieces (known as half-dimes) were made of silver, an 1865 law mandated the new nickels to be made with the same mixture used today. One exception to this composition is in wartime nickels (1942-1945), which contained 35% silver, 56% copper, and 9% manganese.

How nickels are physically made

Every coin in circulation in the United States is produced by the same standardized process. The only difference is in the size and stamp for each type of coin. Here is how the Mint undertakes the task of making the actual nickel:

1. Blanking – The Mint first takes rolled sheets of premade cupronickel and feeds them into a straightening machine to force them into horizontal sheets. Then, they enter a blanking machine, which stamps nickel-sized discs out of the sheet and passes them to the next step of the process.
2. Annealing – The blanks are then heated in a specially-designed oven to 1,600 degrees in order to increase their flexibility and ease of use.
3. Washing and drying – The heated blanks are then washed in an anti-tarnish solution in order to preserve their color and integrity. They are dried, and move on to upsetting.
4. Upsetting – Upsetting the blanks does not mean that the Mint now makes the blanks sad. Instead, the upsetting mill squeezes the blank in order to raise its edges and create a rim, which will make the coin easier to stack and protect its surface.
5. Striking – Finally, the blanks are ready to become nickels. The upset blanks move into a hydraulic press with dies above and underneath. The press uses as much as 100 metric tons of pressure to stamp the nickel’s obverse and reverse designs into each coin.
6. Bagging and packaging – The new nickels are placed into large bags and shipped to the different Federal Reserve locations around the country.

Nickels made for circulation are produced at the US Mint’s Philadelphia and Denver locations. Proof nickels are made at the San Francisco location.

The cost of this production process represents roughly 80.5% of the 13.78 cents it costs to make a nickel. In other words, 11 cents worth of materials and work alone are needed to make a coin worth five cents.

Factors Influencing Production Costs

One of the biggest problems for a mint looking to decrease production costs is the rising prices of the constituent metals. Although nickel appears to be in a surplus at the moment, copper prices are forecast to continue rising. Thus, as long as these two metals represent the parts of a nickel’s underlying alloy, it will be difficult to make the material costs drop.

Another issue is inflation. Inflation has made prices for almost all goods rise dramatically in recent years, and metals are not exempt. So, even though the face value of the nickel has not changed, the cost of producing one has nowhere to go but upwards.

The reality is that there are some unavoidable costs in the process that a simple reduction in output cannot fully address. Regardless of how many it plans to make, the Mint is nonetheless on the hook to buy and maintain industrial-size machines and facilities to make the coins.

Economic Implications

Proponents of doing away with the nickel often cite its cost overruns as the chief reason to withdraw it from circulation. It is certainly counterintuitive that it costs 14 cents to make 5 cents.

They also argue that the presence of the nickel as part of pricing and transactions slows down the economy. The argument is that more precise pricing leads to reduced productivity for merchants and customers.

There is even a concern about the environmental aspects of mining the necessary copper and nickel to make nickels. The processes to bring these metals to earth can negatively affect both land and water resources in the areas surrounding the mines.

On the other hand, supporters of the nickel argue that its removal would increase the overall price for items and hurt poorer citizens. Rounding all transactions up to ten-cent denominations could have a measurable negative impact on the budget outlooks for the impoverished or financially frail.

Alternatives and Proposed Solutions

One possible solution might be to try an alternative metal or mixture of metals. Since nickel seems more affordable, it’s possible a simple switch in the proportions might make a difference – although there are other considerations, such as the integrity of the new coin, that might come into play. And, any new material must maintain compatibility with vending machines and banking systems.

However, the most likely scenario is that the nickel will be phased out of circulation at some point in the future. The penny is probably first to go, but the nickel will be the next target.

Conclusion

As we mentioned above, the US government’s focus on production costs outrunning a coin’s face value seems confined to the penny for now. Because the case for the penny as a relevant medium of exchange is so much weaker, it seems logical that pennies would be on the chopping block before nickels.

However, there’s no denying that nickel production is a problem. Running at a loss is destructive, but, sadly, is also a common activity for the US government.

With the new administration in power, though, there may be a sea change underway. So, it’s best to keep an eye on the movements of the DOGE as they relate to coinage – especially if pennies become a thing of the past.