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Using a credit card to invest in 2022

It's possible in some cases, but we recommend against it.

The recent GameStop and Dogecoin short squeezes may have left you wondering whether you can invest using one of your credit cards. Generally, most brokers and online trading platforms won’t let you directly buy stocks with a credit card. However, some platforms allow you to buy discount stocks or fractional shares with your card, and there are some workarounds with those brokers who don’t accept credit cards.

Before investing in general, know there’s a significant likelihood you could lose some or all of your money. Investing with a credit card carries even higher risk. Steep APRs can easily wipe out your gains.

And if your investments decrease in value, you’ll end up in debt while still having the burden of paying interest. We recommend investing only with funds you have available instead of trying to invest with a credit card.

Should you use a credit card to invest?

It’s tempting to use a credit card to purchase investments. Extract money from your card, then take advantage of the interest rate to pay off that accruing interest over time. Meanwhile, invest that money and hopefully start collecting a return on your investment before the interest ramps up.

That sounds great in theory, but it rarely pans out in practice. Credit card cash advance APRs are generally about 25.35% on average and often possess no grace period. Plus, you’ll typically need to pay a cash advance fee to withdraw that cash. In total, there’s a steep price to pay to borrow money from your credit line.

There’s more bad news: The average annual return for the S&P 500 is 10%. If you adjust for inflation, that figure drops to 7%. When you’re paying 25.35% APR to borrow money via credit card but only making a 7% return on your investments, you lose on the math.

How to use a credit card to invest

As we’ve discussed, investing with a credit card is risky. But if you still want to use your credit card to invest, you may be able to do it with the following methods:

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 check. If you decide to go with this method, consider applying for a credit card with low cash-advance rates.

Why is it risky?

There are major downsides to this method. Cash advances typically come with high fees and steep interest rates. What’s more, they’re rarely covered by a grace period, which means you’ll likely start accruing interest right away.

For example, let’s say you want to take out a $1,000 cash advance. You could pay a 5% fee right away, which is $50.

The cash advance might also collect interest at a high 24.99% variable APR. All told, your investment would need to garner an incredible return — and fast, too — for you to cover the costs of your cash advance.

2. Use a brokerage credit card.

Some brokerage cobranded credit cards let you directly deposit your cashback rewards into your investing account. The more cash back you earn with these cards, the more you can deposit:

  • Fidelity Rewards Visa Signature Card
  • Schwab Investor Card from American Express
  • American Express Platinum Card for Schwab
  • TD Ameritrade Client Rewards Card
Why is it risky?

This is one of the lower-risk ways to use your credit card to invest. That’s mainly because you’re not directly using your card’s credit line to add funds to your brokerage account.

Instead, you’ll use your credit card as usual for your normal purchases. For this spending, you’ll earn rewards that you can later deposit into your brokerage account.

On the downside, earning rewards can be a slow process. But at least you’ll be investing with money you already have, rather than trying to produce a return while contending with high interest rates.

3. Redeem credit card cash rewards.

Most rewards credit allows you to redeem your rewards for cash. Redeem this cash into your checking account and then make a deposit into your brokerage account.

Why is it risky?

A similar method to using a brokerage credit card, you’re not directly using your credit line to add funds to your brokerage account. Rather, you’re using the rewards you earn to start investing.

If you’re looking for a less-risky method, this is an option. After you cash out your rewards, the money is all yours, and you don’t have to pay interest on it.

4. Leverage PayPal.

Another strategy — of dubious validity under PayPal terms — is to create two PayPal accounts. Then link one account to your credit card and the other to your bank account. Once done, 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, withdraw your PayPal funds to your bank account that you’ll link to your brokerage.

Why is it risky?

To reiterate our earlier warning: This strategy is very dubious and you stand the chance of being shut down per PayPal’s user agreement.

Keep in mind that sending money from a credit card to your bank account may trigger a cash advance. That means you may pay very high fees and interest. Even if your transaction doesn’t count as a cash advance, you’ll still need to keep an eye on your credit card’s normal APR.

5. Sign up for Acorns.

With the Acorns app, make micro-investments in exchange traded funds (ETF). The app allows you to link your credit card. But take note that funds for Round-Ups are drawn from your linked checking account, so you’re not actually using the credit from your card.

Why is it risky?

This method doesn’t draw funds from your credit card, so it’s among the lower-risk options.

In fact, this is one of the most indirect strategies to take advantage of your credit card. Your card’s only purpose is to identify how much Acorns draws from your checking account. In that sense, there’s good news: You’re investing only with money you have immediately available.

6. Use a 0% APR balance transfer card.

With a balance transfer, you move debt from other sources onto your credit card. Take advantage of this by acquiring money through credit and then moving your debt to a balance transfer card.

For example, use the PayPal strategy we discuss above and then use a balance transfer to move your debt to a 0% APR card. On the downside, each balance transfer you make typically comes with a fee of 3% to 5%.

Why is it risky?

Not only is this method risky, it’s complex as well. You’ll need to acquire money initially through credit, which likely means taking out a cash advance that comes with high fees.

Then you’ll need to move that balance to a 0% APR card, for which you’ll also likely pay fees. Note that there are some cards that charge $0 introductory balance transfer fees.

If you get this far, you’re hoping your investment produces a return before your intro APR expires. When that date arrives, you’ll start accruing interest on your balance at the normal rate.

A big risk here is the number of steps involved, which means there are more opportunities for mistakes. You might find this strategy isn’t worth it at all when you factor in the fees you’ll pay.

7. Buy commodities.

If you have a good eye for valuable commodities, use your credit card for items like baseball cards and jewelry. Note that if you want to pay off your card balance with earnings from the sale of your commodities, you’ll need to be relatively certain your purchases will appreciate within a short period of time.

How risky is it?

This strategy carries risk because the value of commodities can be volatile. If your credit card doesn’t have a 0% APR, you’re basically hoping your commodity increases in value before your interest grace period expires.

Reduce your risk by using a 0% purchase APR card. However, keep an eye on when the introductory rate expires, as you don’t want to pay interest on your purchase. And of course, there’s no guarantee that the value of your commodity will go up.

Should you trade on margin instead?

If you want to invest on credit, another option is to open a margin account. Margin accounts are offered by online trading brokerages and essentially let you borrow money from your broker to make trades.

When trading on margin, your broker lends you money to increase your buying power so you can execute bigger — and potentially more profitable — trades. Think of it as a loan agreement between you and your broker, where your brokerage account and held assets serve as collateral.

Sounds lucrative, right? Well, here’s the problem: margin trading is inherently risky. While the opportunity exists to multiply your returns, so too does the risk to multiply losses.

You could — very quickly, in some instances — lose more money than you initially invested. That’s because you’re on the hook for whatever you borrow from your broker, regardless of whether or not you turn a profit.

The upside is easy. Suppose you put $1,000 into a stock worth $100 per share. The stock rises by $50. Your $1,000 position is now worth $1,500, for a $500 profit.

Using margin, you could have borrowed $1,000 from your broker and bought $2,000 worth of stock. After a $50 rise, the position is worth $3,000. You repay the $1,000 loan and pocket a $1,000 profit.

But what if the stock goes down? Let’s suppose you put that same $1,000 into 10 shares of the same stock: The stock drops to $50. You lose $500 – half your money.

Again, using margin, you could have borrowed $1,000 and bought $2,000 worth of stock. If it drops to $50, your 20-share position is worth $1,000.

You must repay the broker $1,000, so you’re out $1,000, your entire initial investment plus any interest or commission. If the stock falls to zero, you’re out your initial investment and you still owe the broker $1,000.

Your broker will also require a minimum value for your account. So big drops will trigger a margin call, which means one of two things would happen: You’d either need to add more money to your account, or your broker will sell the stock and you’ll have to take the loss — even if the stock recovers a day later.

For experienced investors only

As you might have guessed, trading on margin requires expertise to properly execute. It’s certainly not for beginners, who stand to lose heavily from it. Make sure you study extensively and have proper liquidity before attempting to trade on margin.

What is credit card arbitrage?

Credit card arbitrage is borrowing funds from your credit card at a certain interest rate and investing the money into a higher-rate investment, profiting off of the difference.

Usually, this involves leveraging a card with a 0% purchase or balance transfer APR. As a simple example, you might invest in certain stocks with a 0% purchase APR card. Before your introductory rate ends, you’ll sell your stocks, pay off what you owe on your card and collect whatever’s left.

Be cautious when using credit card arbitrage. The reward might not be worth the risk, especially considering federal and state taxes.

Compare credit cards for investments

If you are going to use a credit card to invest, make sure to choose the option that’s right for you. Compare cards that have a 0% intro APR on purchases or balance transfers, as they can help you transfer funds to pay for investments.

Alternatives to investing with a credit card

To avoid the many pitfalls of investing with a credit card, opt to invest with any cash you’ve got on hand. As frustrating as it is, it’s best to cover the cost of an investment out of pocket. If you invest in stocks, you can never lose more than your initial investment — and the same can’t be said for buying and selling on borrowed funds.

The good news is that there are numerous online brokerages that have no account minimums, which means you can start investing with as little as $1. For those new to the world of online trading, you’ll want to stick with beginner-friendly platforms like SoFi or Moomoo, which offer commission-free trades through an easy-to-navigate user interface.

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Bottom line

Most brokers won’t accept credit card deposits. You may find some trading platforms that accept this payment method, but in most cases, you’ll need to find a workaround. This often includes making a cash advance or redeeming your cash rewards into your checking account and then making a deposit to your investing account.

If you like the second option, compare credit cards with rewards. But if taking a cash advance is your preferred option, look for credit cards with low cash-advance rates.

Frequently asked questions

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