One of the most common pieces of financial advice is to invest in stocks. But most stockbrokers encourage you to deposit with your bank account. Learn whether you can buy stocks with a credit card – and whether you should.
Only a small handful of stockbrokers let you directly make deposits or buy stocks with credit cards. They also typically charge high fees for letting you do so. You can indirectly buy stocks with a credit card from another broker via a cash advance. However, this will come with incredibly high fees.
Learn more about where you can buy stocks directly with a credit card and how to do so indirectly. Then explore whether you should buy stocks using your credit card.
Buying Stocks With Credit Card: What to Know
The most common method of buying stocks is via a bank transfer to your brokerage account. However, many people want the convenience of being able to buy stocks with credit cards. Maybe you don't want to connect your bank account. Or perhaps you are hoping to earn credit card rewards on your purchase.
Many brokerages don't allow you to directly fund your account for buying and selling stocks with your credit card. Instead, you have to be creative and transfer funds or other indirect uses of your card to fund your stocks.
While you can buy stocks with a credit card, it is not usually your best decision. The biggest issue is likely to be the high fees, but you may also fall victim to a scam.
Can You Use a Credit Card to Invest in Stock?
As mentioned, yes, you can. You can use a credit card to invest in stocks. But the important caveat is that your options are limited. If you want to use a credit card directly with a broker, you will have only a small handful of brokers to choose from.
If you want to buy stocks from a broker that doesn't accept credit cards, you can do so indirectly. The most common examples of this would be a cash advance or choosing a broker that lets you buy gift cards with a credit card.
Where Can I Buy Stocks With a Credit Card?
The options for directly buying stocks with a credit card are incredibly limited. Stockpile was historically the only option, but they no longer accept credit cards. Now, eToro is the most popular option.
The following are some brokers that accepted credit cards at the time of writing:
- Admiral Markets
- ATFX Global Markets
- City Index
- Pacific Union
Carefully Evaluate Any Broker Before Buying Stocks With a Credit Card
We already mentioned that high fees are a common issue when buying stocks with a credit card. But this is not the only reason to be careful before choosing a broker. You also want to ensure you avoid scams.
Simply put, scammers know that people want to buy stocks with credit cards, but few brokers offer the option to do so. Some take advantage of this by making it seem like they are a broker and getting your credit card information. It may also be a legitimate broker, but with excessively high fees or other poor practices that take advantage of the desperation to pay with a credit card.
To protect your money, always consider the following about any broker before buying stocks or making a deposit with a credit card:
- That they are regulated
- That they are well-established with a positive reputation
- What are their fees and commissions
- The withdrawal method and fees for the withdrawal
- Customer support
- Trader resources available
You will notice that you want to consider the same points even if you use a different payment method. It simply becomes especially important to do your research on a broker before depositing.
How to Buy Stocks With a Credit Card Indirectly
The above list of brokers that directly accept credit cards is pretty limited. Technically, however, you can use a credit card to buy stocks from any broker. It is simply an indirect process. As mentioned earlier, a cash advance is the most popular indirect method, but there are some others as well. Keep in mind that the options that you have available will depend on your credit card issuer and your broker.
As the name implies, a cash advance gives you cash from your credit card, and you pay it off on your next billing cycle. While this is the easiest option, it is also among the worst choices available. The biggest issue with a cash advance is the fees.
The cash advance will likely feature a fee of about 3 to 5% on the amount you take out. So, if you want to invest $1,000 in stocks and use a cash advance to do so, you'd pay $30 to $50 in fees! But those are just the initial fees. Cash advance APRs are usually higher than the regular APR from transactions on your credit card. AND they start to accumulate interest right away. This contrasts with normal purchases that won't accumulate interest until after your payment due date.
The following summarizes the cash advance fees:
- An initial fee of 3% to 5% (or so) on the amount you advance
- A higher APR
- Interest starts accumulating immediately
The issue here should be obvious – those fees cut right into potential profits from trading stocks. They hurt your chances of making a profit.
Depending on the type of credit card you have, it may offer an alternative to cash advances that lets you transfer some funds into a checking account. You would use this to transfer the cash into your brokerage account and buy stocks.
But this comes with some of the same challenges as cash advances, including:
- A balance transfer fee (usually 3% to 5%)
- The transferred amount starts accruing interest right away
You may be able to find a broker that accepts gift cards and lets you buy them using credit cards. The challenge is that there are typically flat fees to buy these credit cards and a fee of about 3% to buy them using a credit card.
Of course, there is also the fact that few brokers offer gift cards like this. Stockpile was one of the best-known options, but it no longer offers this ability. In fact, even an online search doesn't show many (if any) brokers with gift cards. Of course, this may change by the time you read this article.
Additional reading: What Does DD Mean in Stocks? [DUE DILIGENCE DEFINED]
Credit Card Stocks – Should You Buy With a Credit Card?
We've already touched on some of the potential pros and cons of buying stocks with a credit card. But you'll find it easier to make an informed decision if they are all in a single place.
Pro: You Can Buy Stocks on Credit
Buying stocks with credit cards may seem like a good idea if you don't currently have the cash to invest but want to buy stocks. After all, you can buy stocks using credit.
But this is a bad idea. In addition to the regular fees, remember that whatever you put on your credit card will accumulate interest. If you specifically buy stocks with a card because you can't afford them, you will quickly accumulate a lot of interest, eating into potential profits.
Pro: Potential Credit Card Rewards
The other big reason some people want to buy stocks with a credit card is to get rewards. This is a logical option, and if your purchase is eligible for rewards, it can work. But the cons still outweigh the pros.
Con: Stock Purchases May Not Be Eligible for those Rewards
To start, many credit card issuers specifically exclude cash advances and balance transfers from earning rewards. So, your stock purchase likely won't be eligible.
Con: High Fees
We've already mentioned the high fees for buying stocks with credit cards, whether you do so directly or indirectly. Remember that higher fees increase your initial investment and mean that you need to make more to break even.
Con: Extra Steps Involved
You typically have to use a roundabout solution to buy stocks with a credit card, such as a cash advance that you deposit into a bank account. This complicates the process.
Con: You Accumulate Interest If You Don't Pay the Balance, Further Cutting Into Profits
Remember that interest rates on your balance will make it even harder to profit. On top of that, remember that cash advances usually start accumulating interest immediately.
Con: A High Credit Card Balance Hurts Your Credit Score
Anytime you use your credit card, you will affect your credit. How you manage it will determine how it affects your credit score, regardless of what you purchase. If you apply for a new card to do the trading with, this may impact your score slightly. It will also lower the average age of your credit.
Keeping the balance from the stock purchase on your card will also hurt your credit score by worsening your credit utilization ratio. If you don't pay on time, it can also hurt your payment history.
Con: You Have to Avoid Scams
You have to be very careful to avoid scams. The U.S. Securities and Exchange Commission has made several official warnings about this risk.
Con: If You Sell Quickly, You Will Face Short-term Capital Gain Taxes Instead of Long-term Ones
Because of the interest and fees, you will likely be tempted to sell your stocks quickly to make a profit. But this will make your profits subject to the short-term capital gain tax. If you held the stock for a year or longer, you could have a lower tax rate as it would be a long-term capital gain.
How to Invest in Stocks Other Than a Credit Card
The best alternative to investing in stocks with a credit card is to get a brokerage account. You can even start with an IRA or 401k. Or you can look for a broker that sells fractional shares, which will lower the minimum investment amount.
You can technically buy stocks using credit cards, but you usually have to do so indirectly with a cash advance. This is rarely a good idea due to high fees and interest rates that cut into your profits.
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Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author. He's been featured on Forbes, The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.