Penny auctions or bidding fee auction sites are a relatively new form of online buying. Participants enter an online auction to purchase heavily discounted goods and services, paying a non-refundable fee for every bid.

The price rises with each bid as participants try to purchase the discounted item. The last participant to bid when the time limit expires gets the item. However, the final bid is not the total cost; the total cost is the final bid price plus the cost of bidding.

Consumers should also be wary of disreputable sites, which may use computer generated bidding (called ‘bots’) to drive the cost higher. Another practice called ‘shilling’ involves site operators using a third party to place dummy bids to drive the cost higher.

If you plan to take part in a penny auction, research the site you intend to use, ensure you read all of the terms and conditions carefully and keep the true cost in mind.