07/30/2012 05:53 EDT | Updated 09/29/2012 05:12 EDT

Penny's life extended to Feb. 4

The Royal Canadian Mint will stop distributing pennies to financial institutions as of Feb. 4, 2013, the federal government announced Monday.

The government said in its March budget it would eliminate the penny, describing its costs of production as excessive relative to its face value and the significant handling costs imposed on retailers, financial institutions and the economy in general.

It costs 1.6 cents to produce every penny.

A 2008 report by Quebec-based bank Desjardins estimated the penny's existence cost Canada's economy about $150 million in 2006. Canada's big banks alone handle more than nine billion pennies a year, which costs $20 million annually to process.

Ottawa estimates the decision will save taxpayers $11 million a year.

With the elimination of the penny, the government is recommending the value of cash transactions be rounded to the nearest five-cent increment.

Originally, the government said the mint would stop circulating the coin in the fall, but on Monday it said that waiting until after the holiday shopping season would allow banks and businesses ample time to train staff and better inform consumers.

Credit, debit and cheque transactions will be unaffected, so one cent will still be the base unit of Canadian currency.

Over time, the penny will effectively become extinct, although the government says one-cent coins will always be accepted in cash transactions for as long as people still hold on to them.