Every investor has to strike a balance between risk and reward, but trying to buy stocks with a credit card can quickly turn things against you.
If you currently have disposable income, you might consider investing that money in the stock market for growth.
However, using a credit card can put you at risk of fraud, damage your credit score, and end up costing you more than you get back.
Most reputable companies won't allow this, and taking a risk can have some serious consequences.
The Risks of Buying Stocks Using a Credit Card Buying stocks comes with an inherent risk of losing your investment.
It can be disappointing when one loses money, but the consequences of losing money on borrowed funds, such as B. your credit limit, can be much greater.
Can't repay the loan When you invest in stocks, you are taking calculated risk. If you can't afford the amount you invest today, you'll likely earn much more interest on your balance than you would earn on a stock investment.
And, if you lose money on your investments, you could face more credit card charges on your account balance and suffer credit score damage due to late or missed payments.
Today, the average credit card annual interest rate is more than 19%, while the average stock market return varies, but is usually around 7% to 10% -- which is for long-term, less volatile investments.
Borrowing money to invest in the stock market can cost you more in interest than you're likely to see in return; if you want to start investing in stocks, only invest the amount you can afford today, and weigh all the risks beforehand.
Fraud risk According to the SEC, most well-known companies do not allow credit cards for investing. Vendors urging you to use your credit card are more likely to use your money for fraudulent scams, and anyone encouraging you to invest large sums of money right away may not have your best interest in mind.
If you choose to invest using a credit card, please keep an eye out for any suspicious transactions on your credit account. If you notice anything suspicious, please report it to your card issuer immediately.
A Safer Way to Invest in Credit Cards Buying stocks with a credit card is a risky business, but that doesn't mean you can't use your credit card to earn returns in the market.
There are safer methods that don't involve buying stocks outright. Instead, you can use your credit card to make money.
Use investing apps Investing apps like Acorns and Stash are great ways to start building a portfolio using a credit card. For example, Acorns allows you to link a credit card to a comprehensive plan with every purchase and offers a Money Found feature where you can earn money when you shop with Acorns partners. You can safely grow your money with a variety of similar investing apps from the comfort of your phone. Open Credit Card Investment Rewards While many rewards cards earn cash back, points, or miles that you can spend on future purchases, some credit cards offer the ability to deposit rewards into an investment account. For example, the Fidelity® Rewards Visa Signature® Card* offers a competitive 2% cash back on all purchases deposited into an eligible Fidelity account. Invest your cash back rewards If you already have a cash back rewards card, you can apply for cash back by check or deposit. Your issuer may require you to deposit a minimum amount, such as $25, before you receive a check or deposit, which you can then use to fund your own investments. Consider opening a brokerage account with low fees and no minimum deposit that you can grow as you earn income. final result When stock prices are low, it's a good time to invest. However, it is important to do so responsibly. While it may be tempting to buy stocks using a credit card, it is also risky and can lead to fraud. It is smarter to use your card to earn spending in other ways, e.g. B. by investing with cash back rewards or linking your card to an investing app.