Credit Cards and Investing

By The Office of Investor Education and Advocacy, U.S. Securities and Exchange Commission

Credit cards can be a convenient way to purchase goods and services. However, investors should understand that most licensed and registered investment firms do not allow their customers to use credit cards to buy investments or to fund an investment account.

Investing using a credit card has several risks:

  • Unregistered and unlicensed sellers often pressure investors to use credit cards for investments that are actually fraudulent scams. Most registered investment firms do not allow their customers to use credit cards to purchase investments – so be skeptical if you are asked to use a credit card to invest. Carefully researchthe background of any investment professional or firm before handing over your money. Use the free, simple search tool on Investor.gov to make sure the firm and professional is licensed.
  • High Interest Rates. High interest rates may significantly reduce the return you receive on any investment or may even cause you to lose more money than you invested. For example, if your credit card charges a 15% interest rate and your investment provides a 10% return, you will owe more money than you made on your investment if you do not pay off your credit card balance before any interest accrues. This is why we urge investors to consider paying off credit card debtbefore making an investment decision.
  • Credit Risk. If you cannot make your credit card’s minimum payments, you may incur additional credit card fees and risk damage to your credit score.
  • Transaction Fees. Credit card companies generally charge a processing fee (often ranging from 1.5% to 3%) for each credit card transaction. If you use a credit card to buy an investment, you generally have to pay this processing fee with each investment purchase which would have a major impact on the investment’s return.

Some other things to consider include:

  • Issues with Withdrawals. Credit card investment scammers often use delay tactics when you attempt to withdraw your money from the fraudulent investment. These scammers will often hold up your withdrawal request from an investment account until it is too late for you to dispute the charge(s) with your credit card company. The Fair Credit Billing Act (FCBA) provides consumer protectionsif you are charged for goods and services you didn’t accept or that weren’t delivered as agreed, but you must send a letter disputing the charges that reaches the creditor within 60 days after the first bill with the error was mailed to you. 
  • Credit Card Abuse. Keep an eye out for unauthorized charges on your credit card statements. Even if you signed a form purportedly waiving your right to dispute any credit card charges, report all unauthorized charges to your credit card company immediately.
  • Third-Party Payment Processors. If you make an investment using your credit card through a third-party wallet service or payment processor, you may have limited recovery options because these entities may be unregulated or operating unlawfully.
  • Margin Accounts. A margin account is an investment account offered by some investment firms which allows you to borrow cash from the investment firm to buy securities, using the account as collateral. While both involve borrowing money to buy investments, using a margin account is not the same as using a credit card to buy securities. For additional information on how margin accounts work and their related rules and regulations, please read our Investor Bulletin: Understanding Margin Accounts

We urge investors to work only with a licensed or registered investment professional or firm and not attempt to use a credit card to fund investments. Read more in the SEC’s full Investor Alert on credit cards and investing: https://www.investor.gov/additional-resources/news-alerts/alerts-bulletins/investor-alert-credit-cards-investments-risky.

The Office of Investor Education and Advocacy has provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.


Let Military Saves help you save money so you can feel confident about your finances. It all starts when you make a commitment to yourself to save. Take the first step today and take the Military Saves pledge to save money, reduce debt, and build wealth over time. And it doesn't stop there. Military Saves will keep you motivated with information, advice, tips, and reminders to help you reach your goal. Think of us as your own personal support system.

TAKE THE PLEDGE


Check out these great tips on credit cards and investing from The Office of Investor Education and Advocacy! v/@MilitarySaves https://bit.ly/2sVKJp6

   Tweet this now

 

Tip of the Day

  • Written by Guest Blogger | April 30, 2014

    Check out these 54 Ways to #save on groceries, transportation and more >> http://ow.ly/sfsPP

Saver Stories View all »

One That Almost Got Away

Written by Super User | November 26, 2010

Brody Lockwood - Like a typical fledgling, I started down the track of financial indebtedness. Nineteen years old and nothing to lose. Credit - who need it? Savings - that was for older people with responsibility. Debt - my parents were in debt ergo it must be OK. When I was eligible for reenlistment, I reenlisted for a multiple of 3 worth $15K. I was happy to pay off my debt, but would I be able to stay out of debt?

Read more...

Making Savings a Part of Marriage

Written by Super User | November 26, 2010

Capt. Rob Eckhardt is the first to admit that he hasn’t always been responsible with money. But less than 10 years after a rocky start to saving, Eckhardt reports that he and his wife are free from credit card debt, have a down payment on a home, and are saving regularly for retirement. And, as the Military Saves representative for his Air Force squadron, he’s helping others make similar progress.

Read more...

Savers Pledge Leads to Savings Success

Written by Super User | October 13, 2011

My name is Rob and I am a Staff Sergeant in the Marine Corps Reserve. My financial success is a huge result of the Military Saves Campaign.

My journey began five years ago after marrying my wife, Lisa. We entered our marriage with no savings plan in sight, carrying debt and living in a tiny apartment. After seeing an advertisement for Military Saves, we decided to grab the reigns of our finances and implement a positive financial plan.

Read more...