Can I Buy Stocks With My Credit Card?

Buying stocks is a risky game, but some ways of financing your stock purchases are less risky than others. You can invest using a credit card, but just because you can do something doesn’t mean you should.

Using a credit card to buy stock can add risk to an already risky transaction, but credit card rewards may make it worthwhile. Be sure to do your research and consider the risk-reward proposition before making a financial commitment.

How To Use A Credit Card to Buy Stock

Understandably, brokerage firms prefer you fund your brokerage account using bank transfers or checks. These methods are often more straightforward and more secure for the investor. If you do decide it is worthwhile to buy stocks with your credit card, you will likely have to route your money indirectly to land it in your brokerage account.

With the Stockpile app, you can buy fractional shares using gift cards, which have a wide range in value starting at $1 and go as high as $200. You can buy a Stockpile gift card with a Visa or Mastercard (note that American Express or Capital One-issued cards are not currently able to be used to buy gift cards) and then redeem the value on the card for purchasing stock shares. Stockpile allows a maximum purchase of $200 per 24 hours. If you’d like to make a purchase for more than $200 with a credit card, you’ll have to contact customer service to make the request. Again, be sure to calculate beforehand what your actual gain will be after the fees incurred. Whatever amount you pay for the gift card, you will owe that on your credit card balance and will also be charged the additional investment and trading fees through the app.

If you decide to use your credit card to make a balance transfer or cash advance from your credit card account into your checking account, you can then invest directly from your checking into a brokerage account. Remember that since balance transfers and cash advances on credit cards are not considered purchases, these charges will most likely not earn any redeemable points through your card’s reward program. We cannot emphasize enough our dislike for the idea of using a cash advance or balance transfer to buy stock and our recommendation is to read your cardholder agreement to see if it’s permitted if you insist upon trying it.

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Rewards

Rewards can be a motivating factor in trying to buy stocks with a credit card, but it’s actually quite rare to be able to pull it off.

Most credit cards do not allow you to earn rewards on cash-equivalent purchases—which may include gift card purchases, so more than likely your credit card will not allow you to do this. If your card does allow this, the most likely way to earn rewards on card purchases is by purchasing gift cards through Stockpile or another app offering the same service. Again, check the fees incurred by the app, brokerage or credit card and do the math to figure out if you actually come out ahead.

Cards offering welcome bonuses for spending upon account opening may provide more profitable reward-earning options, but if you decide to seek out a new credit card with better rewards for the purpose of buying stock with it, keep in mind that each time you apply for a new card the bank will conduct a hard inquiry against your credit which may cost a few credit points.

Things To Consider Before Buying Stock With A Credit Card

Before purchasing stocks with a credit card, be mindful of any fees. These might include investment fees, cash advance fees, late payment fees and varying interest rates if you encounter issues paying off your card’s balance each month—and in some cases, this list may only scratch the surface.

Investment Fees

Ensure that you check fees and fully understand the cost of using a credit card and the cost of trading with any app or site you choose to use.

Transfer Fees and Interest

Your credit card may allow you to transfer funds into your bank account, where you can spend them on whatever you want—including stocks. Depending on your card company and cardholder agreement, a balance transfer fee can run anywhere from 3% to 5% or more. Balance transfers may accrue interest beginning the same day a transfer is made, so you’ll want to pay close attention to the terms of your cardholder agreement.

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If you plan to do this, it’s likely better to use a balance transfer offer with a 0% introductory APR to avoid interest during the promotional period, but make sure you have a plan to pay back the balance before the intro period expires. Balance transfers are generally designed and intended to transfer a balance of one credit card to another, so your cardholder agreement may also prohibit using a balance transfer in this way. We do not recommend using a balance transfer to accomplish this in most circumstances.

Cash Advance Fees

You can request a cash advance on your credit card to gain access to funds, but this will likewise rack up fees between 3% and 5% of the requested amount. Cash advances also normally accrue interest immediately and on most credit cards the APR tends to be even higher than that of standard purchases and balance transfers. Though a quick way to get cash, this method can add immediate and building pressure to your finances. We do not recommend using a cash advance to gain access to funds as a means of buying stock.

Beware of Scams

If you receive solicitations or are encouraged to buy specific shares with your credit card, it is likely a scam. It should never be necessary to buy stocks with a credit card. If you are told otherwise, you should most definitely do research before making any purchases or offering up any personal information.

How Does This Affect My Credit Score?

Whether you apply for a new card to make a stock purchase or use an existing card with high reward potential, pay close attention to your credit score. Whenever a credit check is run a hard inquiry can affect your credit score, so it is best to not do it too often. With a large purchase of stock, extension of cash advances or balance transfers make sure you are not bringing the card’s outstanding balance too close to its preset credit limit, as this could increase your credit utilization ratio and lower your credit score.

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Opening too many accounts at once or applying for too many cards too quickly may also negatively impact your credit. Aside from affecting the numbers on your credit history, activity like this can potentially raise red flags with your card issuer. If they see you making risky spending choices, a card issuer may limit your ability to access more credit or receive approval for new cards.

Does Buying Stock With a Credit Card Affect My Taxes?

Yes. No matter the method you choose to buy or sell stocks, your investments may incur capital gains tax when you make money.

Capital gains taxes are determined by how long your holding period is for any given asset. This is something to be wary of if you are essentially using a loan from your credit card company to invest long-term with a high initial buy-in. The IRS considers long-term holding periods to be at least one year, which means if you invest a large sum for a long-term period you have to take into account the final gain you make. Not only will you want to come up with the funds to pay off your card’s monthly balance long before you intend to sell, but you may also need to pay taxes owed on your gain.

Bottom Line

Investing in the stock market comes with inherent risk, particularly during periods of market volatility. It is highly preferred to work directly with a brokerage firm and risk only money you already have when dealing in stocks. If you’re after credit card rewards, know that most credit cards are unlikely to reward the transactions you might make buying stock with a credit card. If the market takes a downturn, the rewards you’ve earned and your investment can be lost and you’re still stuck with your credit card bill. If you do wish to use a credit card to invest, there are relatively secure ways to move the money, but you should be careful not to spend money you don’t have, keep an eye on the fees and any interest you incur and make sure not to damage your credit in the process.