Buying Stocks With a Credit Card: Can You, Should You, How to, and Alternatives
Normally, you cannot buy stocks with a credit card, however, there are technically a few ways that you can sidestep the process. The question of whether you should do it depends on your personal financial situation. In most instances, there are policies against it to protect you from losing the money you can’t afford, and then having to pay interest on lost money.
However, smart cardholders might be interested in the rewards gained through making purchases on their credit cards, like cashback, 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 Risks of Buying Stocks with a Credit Card
- 4 Alternative Credit Card Investment Options
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 decide that the reward is worth the risk that you are taking on.
Buy Discount Stocks
Some stockbrokers are offering discount stocks and allowing investors to purchase them with credit cards. So this is one option you could pursue 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 you use.
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
Stockbrokers may accept a debit card, but there are essentially no stockbrokers 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.
Risks of Buying Stocks with a Credit Card
Yes, you can purchase stocks with a credit card. You should be prepared to jump through extra hoops and be aware of the various risks associated with buying stocks with a credit card.
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 that is typically between 10 and 20%, or more, depending on your card. In 2020, the average APR rate was over 16%.
Additionally, cash advances often have even higher interest rates and usually offer no grace period. Cards like Chase Slate charge a $10 or 5% fee (whichever is greater) and then 24.99% interest on top of the fee.
Investing in stocks is always risky; unless you’re Warren Buffett, you don’t want to throw 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.
Alternative Credit Card Investment Options
Since there are risks associated with investing in stocks via credit card, it is important to be aware of the viable, safe ways to invest using a credit card — these include:
- Take advantage of credit card rewards: Open a credit card that offers rewards, get the most out of your rewards that are offered, and invest that money in some way;
- Utilize investment apps: There are tons of investment apps — such as Acorns, Stash, and Robinhood — that can help you build money while using a credit card.
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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.