Crypto is unregulated in the UK; there's no consumer protection; value can rise or fall; tax on profits may apply*.
Crypto credit cards
Crypto credit cards allow you to earn a little cryptocurrency back on your day-to-day spending, but they're yet to reach these shores. Here’s how they work and some similar products that you can get.
Don't invest unless you're prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more.
Estimated reading time: 2 min
Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.
What are the key risks?
1. You could lose all the money you invest
- The performance of most cryptoassets can be highly volatile, with their value dropping as quickly as it can rise. You should be prepared to lose all the money you invest in cryptoassets.
- The cryptoasset market is largely unregulated. There is a risk of losing money or any cryptoassets you purchase due to risks such as cyber-attacks, financial crime and firm failure.
2. You should not expect to be protected if something goes wrong
- The Financial Services Compensation Scheme (FSCS) doesn't protect this type of investment because it's not a 'specified investment' under the UK regulatory regime – in other words, this type of investment isn't recognised as the sort of investment that the FSCS can protect. Learn more by using the FSCS investment protection checker.
- The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm or Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA regulated firm, FOS may be able to consider it. Learn more about FOS protection here.
3. You may not be able to sell your investment when you want to
- There is no guarantee that investments in cryptoassets can be easily sold at any given time. The ability to sell a cryptoasset depends on various factors, including the supply and demand in the market at that time.
- Operational failings such as technology outages, cyber-attacks and comingling of funds could cause unwanted delay and you may be unable to sell your cryptoassets at the time you want.
4. Cryptoasset investments can be complex
- Investments in cryptoassets can be complex, making it difficult to understand the risks associated with the investment.
- You should do your own research before investing. If something sounds too good to be true, it probably is.
5. Don't put all your eggs in one basket
- Putting all your money into a single type of investment is risky. Spreading your money across different investments makes you less dependent on any one to do well.
- A good rule of thumb is not to invest more than 10% of your money in high-risk investments.
If you are interested in learning more about how to protect yourself, visit the FCA's website here.
For further information about cryptoassets, visit the FCA's website here.
Using a credit card responsibly can be a great way to earn rewards on your day-to-day spending. With a crypto credit card those rewards come in the form of a small amount of cryptocurrency. In addition to the crypto rewards, some cards offer enticing perks like sign-up bonuses, discounts with partner brands, airport lounge access or reduced/waived transaction fees when you use them overseas.
While crypto credit cards aren’t available in the UK yet, crypto debit/prepaid cards are. The difference between them is that with a debit/prepaid card you’ll need to already have the funds available to spend, rather than borrowing from your card issuer. You’ll still be able to earn cryptocurrency on your regular spending.
What is a crypto credit card?
A crypto credit card is much like a standard rewards credit card but it allows you to earn cryptocurrency on your regular spending. You can earn points that can then be converted into cryptocurrency, or earn cryptocurrency directly for everyday purchases. Some cards offer attractive earn rates, upwards of 2% for example.
How do crypto credit cards work?
Like other bank cards, a crypto credit card lets you tap or insert your card at a shop to make purchases. If you’re using it to buy online, you can enter your card numbers to make a purchase.
Shops don’t take payment in cryptocurrency, so the card network (normally Visa or Mastercard) processes the transaction and then requests the money in fiat currency (like pounds sterling) from your card issuer.
The cards are generally issued by platforms offering crypto investing services, so you’ll usually need to have an account with them in order to request the credit card.
You’ll earn rewards at an agreed “earn-rate”. Typically it’s a percentage of the amount you spend. So with an earn rate of 1%, if you spent £100 you’d earn the equivalent of £1 in cryptocurrency, tokens or points – whatever scheme the card issuer uses.
With crypto credit cards you could be charged interest if you don’t clear your balance in full each month, and that could easily outweigh what you earn in rewards. However, crypto debit/prepaid cards generally won’t charge you interest, because you’re drawing on money you already have in the account.
As no crypto credit cards have launched yet in the UK, if you’re interested in earning crypto rewards through your spending, you could consider a crypto debit card. We’ve compared popular cards in our table.
Compare rewards-earning crypto debit cards
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Our full guide to crypto debit cards gives you more details and what to consider, including pros and cons. In this guide, we’ve focused on crypto credit cards.
Pros and cons of crypto credit cards
Crypto credit cards are convenient and easy to use, and they can help make your trip to the supermarket or restaurant more rewarding. But as with all credit cards, you’re incurring a debt and could end up paying interest.
Pros
- Earn crypto rewards on your purchases. Each time you swipe your card, you earn cryptocurrency, or reward points you can redeem for cryptocurrency.
- Welcome bonus. Some credit card providers offer rich sign-up bonuses, increasing the value of your cryptocurrency.
- Your cryptocurrency could be worth so much more in the future. Due to the volatile nature of cryptocurrencies, the value of the earned points could potentially increase (of course it could also plummet). If you hold the cryptocurrency for an extended period, you could end up fetching handsome returns.
- It is potentially a risk-free way of getting into crypto investing as you’re not exposed to the short-term volatility of cryptocurrency. All you have to do is make purchases on the card, earn cryptocurrency, hold onto it until it increases in value and then sell at a profit.
- Most crypto cards have no annual fee and some charge no fees for foreign transactions. This is a big plus because when your credit cards aren’t costing you money every year, you’re less likely to be overwhelmed by credit card debt.
Cons
- High-interest rate. If you don’t clear your balance each month by the due date, you’ll pay fees (for some) and interest. Heavy interest charges could potentially affect your credit score.
- Need a high credit score. Typically, you need a good credit score to be eligible for these cards.
- Cryptocurrency prices are volatile and can drop quickly. If the cryptocurrency you hold suffers a significant price drop, the value of your earned points or cryptocurrency will lose value too. If you’re converting your cryptocurrency to fiat currency as and when you need to make purchases, it could be hard to track what it’s actually costing you.
- Taxes. Unlike cashback and travel rewards, any cryptocurrency earned from a crypto credit card is subject to capital gains on the profits you make from selling it. So, if you plan to make a substantial amount of cryptocurrency, you may want to consider what you’ll pay in tax.
- Difficulty liquidating your cryptocurrency. Some cryptocurrencies are more difficult to liquidate than others for various reasons. So before applying, be sure to check each card’s terms and conditions to see if you can redeem your points in popular currencies like Bitcoin, Ethereum, Litecoin or Bitcoin Cash. If you want to hold specific coins, ensure the card, and the exchange supports it.
- Crypto credit cards are not available yet in the UK (most cards are offering a waitlist). Even in the US, the selection of crypto credit cards is small.
What does all this mean in practice?
When selecting any rewards card, including a crypto rewards credit card, it’s important to consider how it fits with your pattern of spending, to ensure you get the maximum rewards.
Crypto credit card scenario
John gets a rewards credit card and spends £5,000 in purchases over his first 6 months, paying off his balance in full each month to avoid paying interest. At the end of this time, he has earned £75 worth of cryptocurrency rewards (a rate of 1.5%). He did have to pay a 1% fee to convert his cryptocurrency to GBP, but that has still left him with a £25 profit. If Bitcoin’s price then rises by 5% over the following 6 months, John’s accrued crypto credit card rewards would then be £78.75 worth of Bitcoin at the end of his first year, and he’s £28.75 up. Of course the value of Bitcoin could instead have dived in that time, leaving him with almost nothing, and worse off for fees.
The bottom line: Are crypto credit cards a good idea?
While crypto credit card rewards can be attractive, if you’re not able to pay off your balance in full each month, you’re likely to negate the value of the rewards, just as you would with a mainstream credit card. Remember, there are crypto debit cards too that allow you to earn cryptocurrency rewards on top of what you currently hold. Overall, crypto credit cards are worth considering as a way to get cryptocurrency without parting with money you weren’t going to spend anyway.
Frequently asked questions
*Cryptocurrencies aren't regulated in the UK and there's no protection from the Financial Ombudsman or the Financial Services Compensation Scheme. Your capital is at risk. Capital gains tax on profits may apply.
Cryptocurrencies are speculative and investing in them involves significant risks - they're highly volatile, vulnerable to hacking and sensitive to secondary activity. The value of investments can fall as well as rise and you may get back less than you invested. Past performance is no guarantee of future results. This content shouldn't be interpreted as a recommendation to invest. Before you invest, you should get advice and decide whether the potential return outweighs the risks. Finder, or the author, may have holdings in the cryptocurrencies discussed.
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