Can You Buy Stocks With a Credit Card: 3 Ways to Buy Stocks

Credit cards are plastic or metal cards issued to their holders, allowing them to pay for goods and services from a line of credit created by the issuer that depends on the user’s credit debt. Credit cards are highly popular with Americans. According to data released by the Federal Reserve of Atlanta, 79% of Americans had at-least one credit card in 2020.

People use credit cards extensively to buy goods and services. However, buying stocks with a credit card is a bit tricky. Buying stocks with credit cards is not directly facilitated by most brokerage firms like Robinhood and Fidelity for the right reasons but there are indirect ways this is possible. The rationale of brokerage firms for discouraging direct use of credit cards is because wire or bank transfers to your brokerage account is simple and secure. So buying stocks with a credit card isn’t exactly straightforward. But of-course, there are ways you can use a credit card to invest in stocks. Below I explain how to buy stocks with a credit card.

3 ways you can buy stocks with credit card

1- Gift cards 

Some brokerage firms like Stockpile App allow you to buy gift cards through a credit card which you can later redeem to buy stocks. Gift cards at Stockpile cost from $1 to $2000. However, there’s going to be a fee from $0.99 to $2.99 depending on your purchase, in addition to the 3% fee on your credit card transaction for each of the gift cards you purchase. 

2- Rerouting from a checking account

You can deposit funds from your credit card to a checking account from where you can reroute the amount to your brokerage account. However, it comes with its own problems, the transferred amount will most likely incur a transfer fee of about 3 to 5% by the credit card issuer and apart from that, unless the card offers 0% Annual Percentage Rate (APR) on transferred funds, the deposit would start accruing interest. 

3- Cash Advance 

Another thing you could look into is Cash Advance. However, apart from transaction fees, cash advances come with astonishingly high interest rates, typically in the range of 25%. 

These inefficient approaches aside, you should avoid using credit cards for stock purchases altogether. I’ve outlined the reasons below why it’s generally a bad idea to use a credit card for stock trading

3 reasons to avoid credit cards for stock trading

1- Scam threat

The US Securities and Exchange Commission actually advises citizens to steer away from brokerage firms that allow transactions through credit cards because they could be a potential scam to steal your credit data. 

2- Bad Start

The idea of stock trading using credit cards would be a bad start in itself since you’d be increasing your credit card debt in order to invest. And stock trading comes with its own risks of loss. So consider that you transfer funds from your credit card. And then you transfer funds to your brokerage account to buy a stock, and later the stock goes down, so you’ve incurred not only a loss on your investment, you’ve also incurred credit debt. Not the greatest of ideas!

3- Interest Rates

As we’ve discussed before, balance transfers and cash advances from credit cards accrue interest and any return on your investment would be counterbalanced by the interest you’d be paying. For instance, if your credit card charges a 15% interest rate, it wouldn’t do you a whole lot of good if you make 10% return on investment. 

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Habib Ur Rehman
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