Buying Stocks with A Credit Card: Can You, Should You, and How to Do It
Normally, you cannot buy stocks with a credit card, however, there are technically a few ways that you can. The question of whether you should do it (or not) depends on your situation. In most instances, there are policies against it to protect you from losing money you can’t afford, and then having to pay interest on lost money.
Generally, it’s not a good idea to use credit for something high risk, like investing. If you’re in a place where a credit card is your only option, then it might be a bad time to invest in stocks.
However, smart cardholders might be interested in the rewards gained through making purchases on their credit cards, like cash back, frequent flier miles, and points programs. We’ll break down how to buy stocks with a credit card so you can decide what’s best for you.
Table of Contents
- 1 How to Buy Stocks with a Credit Card
- 2 Purchase Stocks Online Using a Credit Card
- 3 Why You Shouldn’t Buy Stocks with a Credit Card
How to Buy Stocks with a Credit Card
As mentioned, stockbrokers often have policies against buying stocks with credit. But there are a few ways to get around this if you choose to take the risk.
Buy Discount Stocks
Some stockbrokers are offering discount stocks and allowing investors to purchase them with credit cards. So this is one option without having to try and skirt around the rules. However, the risk still applies. Purchasing stocks is risky and if your stock plummets, you could end up owing more to your bank than your stock is even worth.
Get a Cash Advance to Purchase Stocks
Most credit cards have a credit limit along with a different (often lower) cash advance limit. It’s considered a small, short-term cash loan, and will have to be paid back just like anything you purchase with your credit card.
You can get a cash advance through your credit card from an ATM, if you have a pin number. Otherwise, you’ll have to pay the bank a visit.
This is one way to buy stocks with a credit card, although it’s expensive. Some cards will charge a flat fee per advance, others will charge a percentage of the amount. You could also be hit with an ATM fee depending on where you bank, and the ATM used.
Then there are the interest fees. Interest rates on cash advances are often higher than the regular rate on purchases made through your credit card. Watch out for these fees! You could end up owing more than your stock is even worth.
Use a Balance Transfer Card
If you can get approved for a balance transfer card, this is one way to avoid interest fees. So talk to your bank if you haven’t received an offer for one yet. A balance transfer card is used to pay off high interest debts, like credit cards.
If you decide to purchase stocks with credit, use a balance transfer card to quickly pay off the amount in order to avoid the looming interest fee. However, you could be facing additional fees to complete the balance transfer and these cards have limits which might be lower than your credit limit. It’s a good idea to avoid this method, if possible.
Purchase Stocks Online Using a Credit Card
Online Brokers and Trading Platforms That Accept Credit Cards
Stock brokers may accept a debit card, but there are essentially no stock brokers that will take a credit card for payment, for many of the reasons listed in this article. However, since credit is the most common form of payment around the world, many Forex brokers will let you buy stocks with a credit card.
Why You Shouldn’t Buy Stocks with a Credit Card
Can you buy stocks with a credit card? Sure, if you’re up for the task. These are the risks you should consider before jumping in:
If you decide to take a cash advance from your credit card to pay for your stocks, be aware that you will probably end up paying a fee, either a flat rate or a percentage. A $3 fee is also possible if you obtain your cash through an ATM.
If you use a credit card and don’t immediately pay off the credit card, you will eventually get hit with an interest fee typically between 10 and 20 percent or more, depending on your card. In 2017, the average APR rate was over 16 percent.
Additionally, cash advances often have even higher interest rates and usually offer no grace period. Cards like Chase Slate charge a $10 or 5 percent fee (whichever is greater) and then 24.99 percent interest on top of the fee.
Investing in stocks is always risky. Unless you’re Warren Buffett, you don’t want to go throwing all your hard-earned money into the stock market. Using credit, essentially borrowed money, increases your chances of losing big.
You can find ways to buy stocks with credit, but as you can see it’s generally not a good idea. The risks are high and you’re going to have a difficult time making a profit once you figure in the fees and interest charges associated with using credit. If you’re looking to start investing in your future today, consider something less risky like preparing for retirement with savings.
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Tylene is a freelancer in Boise, Idaho. She's a self-taught personal finance hacker with zero debt. She eats avocado toast for breakfast.
This post was updated January 11, 2018. It was originally published January 17, 2018.