Using a credit card to invest

Most investment platforms won’t let you buy stocks with a credit card by accepting credit cards as a payment method. However, if you really want to use plastic, there are a few indirect ways to try. On the other hand, using a credit card to invest is a risky matter as you are putting yourself into debt to do it, and that debt is almost always high-interest debt. Before you do it, know that most experts turn their thumbs down at the idea.

How to use a credit card to buy stocks

Investing with a credit card can be risky and is usually not advised. But if you’re raring to go, here are a few ways buy stocks with a credit card.

1. 1. Take out a cash advance. Once you take out your cash advance, funnel it into your brokerage. For example, you could deposit cash into your bank account, which you’ll link to your trading account. You may also be able to deposit directly into your trading account with a cash advance cheque. There are big downsides to this method, however: Cash advances typically come with fees and higher interest rates. Also, they start accruing interest immediately – there is no grace period.
   2. Leverage PayPal. Create two PayPal accounts and link one account to your credit card and the other to your bank account. Once you’ve done this, send money to yourself from the credit card–linked account to the bank-linked account. You may be able to fund your brokerage account directly through PayPal. If not, you can withdraw your PayPal funds to your bank account, which you’ll link to your brokerage.
   3. Sign up for Moka. While the well-known Acorns app serves the US, Moka was recently created with many of the same features and services in mind. Available to Canadians, you can use the app to make micro-investments, where the money is invested in conservative exchange traded funds (ETFs). The app allows you to link your credit cards, as well as debit cards.
   4. Use a 0% or low APR balance transfer credit card. With a balance transfer, you can consolidate your debt from other sources onto your balance transfer credit card. You can take advantage of this by acquiring money through credit and then moving your debt to a balance transfer card that offers a low or 0% rate. If you’re paying a low rate of say 1.99%, you’ll want to make sure your returns can cover that cost. For example, you can use the PayPal strategy discussed above and then use a balance transfer to move your debt to a 0% or low APR card. Just make sure you pay back the balance before the introductory 0% or low rate promotion ends. Another thing to watch out for is balance transfer fees, which can cost you between 1-3% of your transferred amount.

Learn more about balance transfer credit cards

Should you use a credit card to invest?

It’s tempting to use a credit card to purchase investments. You can extract money from your card, then take advantage of the grace period from any accrued interest. Meanwhile, you can invest that money and hopefully start collecting a return on your investment before the interest kicks in.

While that sounds great in theory, in practice it rarely pans out. Credit card APRs are generally between 8% and 24% — that’s a high price to pay to borrow money. In addition, most providers consider withdrawing funds on a credit card a cash advance transaction. A cash advance interest rate is usually higher than a purchase interest rate and you’ll also face a cash advance fee.

It’s not guaranteed that you’ll get a return on your money higher than the interest you’ll be paying to borrow the money from your credit card in the first place.

Learn more about credit card cash advance interest rates

Bottom line

As always, your investment decisions are up to you. However, many experts recommend investing with money you already have and would likely never recommend using your credit card to dive into investments. If you’re going to borrow money to invest, do your research and make sure you’re aware of any risks.

If you want to invest on credit, consider opening a margin account instead. These accounts let you borrow money to purchase investments. For example, you might pay for half of an investment then borrow the remaining funds from your broker.

Frequently asked questions about buying stocks with credit cards

• Can you buy stocks with a credit card in Canada?

  Yes, you can invest with a credit card by using your card’s cash advance feature. It’s a higher interest rate, so you’ll pay more in interest.

• What's the best brokerage?

  There is no “best” brokerage, since the best will depend on your needs and wants. Before choosing a broker, compare the pros and cons of different brokerages to find the best one for you. To get started, consider looking into popular platforms like Wealthsimple, Questrade, Qtrade Direct Investing, TD Direct Investing and CIBC Investor’s Edge.

  For more on picking an online stock broker, read our Best Online Stock Broker Guide.

• Which balance transfer card should I pick?

  There are a few different balance transfer credit cards on the market in Canada. To get one with a low or 0% introductory APR on your transferred balance, you’ll need to shop around and compare cards. Keep in mind you may be charged a balance transfer fee, which can sit between 1-5% of your total transferred amount.