Using Credit Cards to Buy Investments

Information verified correct on October 22nd, 2016

Credit cards and investments

Stock brokers have made it easy for people to invest borrowed money in shares and other financial assets by accepting credit cards as a funding source. While you might think it’s a great idea to use your credit card to buy investments, you should take a step back and really think hard about adding debt to your finances to buy an investment before rushing in.

ANZ Low Rate

Low Interest Credit Card Offer

No more excuses in getting your credit card debt under control. The ANZ Low Rate credit card allows you to do this with its low introductory rate on purchases and one of the lowest annual fee in the market. Add up to 3 additional cardholders for free.

  • $58 p.a. annual fee
  • 0% p.a. for 6 months (reverts to 13.49% p.a.) on purchases
  • Cash Advance Rate of 21.74% p.a.
  • Up to 55 days interest free
  • Minimum Income Requirement of $15,000 p.a.

First of all, you need to consider what type of investments you will be buying and what the return is. If the yield on your investments is lower than the interest rate you are paying on the money you borrowed, then you might want to consider a different funding source.

Likewise, if your goal is to trade shares in the short-term, you have to be realistic about the gains you will have and compare them to the interest charges you are accruing on your credit card. If you can only average an annual revenue of 8% on your investments but are paying 16% in interest costs per year on the capital you invested, then it might be time to reassess.

Credit cards, investments and fees

When you use your credit card to purchase something in a shop, that merchant is charged a fee by the card issuer to process the transaction. This fee is between 1% and 2% and you never actually see it because the merchant handles it. However, when it comes to stock brokers, their profit margins are so low that they can’t afford to cover this fee themselves and, implicitly, they pass it on to the consumer.

Note that you won’t be charged this fee every time you buy or sell investments, but only when you fund your account through credit cards.

Some stock brokers give you the option to pay the money into a cash account that is essentially a savings account held by the stock broker. In this case, you probably won’t be charged a credit card transaction fee but there is another problem. Once you make the payment into the cash account, it is usually considered a cash advance and the result is that you will start accruing interest the moment the payment is made and, more often than not, the interest rate is much higher on cash advances.

Credit cards, investments and risk

There is an inherent risk with any investments but even more so when you are borrowing money to do it. This is because when you are buying investments, you will find that you can use leverage to buy more shares, even if you don’t have the cash to cover it all. This can mean a higher profit because of a larger number of shares but it can also lead to you losing more money faster.

Using credit cards to buy investments is not always the wisest course of action, especially if you aren’t going to be paying your bill off in full at the end of the month. Therefore, if you want to use a credit card to finance an investment, the only way to do it without exposing yourself to even greater losses is to make sure that you cover the cash you borrowed for investment purposes as soon as possible.

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Credit Cards Comparison

Rates last updated October 22nd, 2016
Purchase rate (p.a.) Balance transfer rate (p.a.) Annual fee
Virgin Australia Velocity Flyer Card - Balance Transfer Offer
Enjoy a 0% p.a. balance transfer offer for 18 months and also earn 2 bonus Velocity Points in the first 3 months on everyday spend.
20.74% p.a. 0% p.a. for 18 months $64 p.a. annual fee for the first year ($129 p.a. thereafter) Go to site More info
ME Bank frank Credit Card
Enjoy a low and consistent interest rate on purchases and cash advances, combined with no annual fee.
11.99% p.a. $0 p.a. Go to site More info
HSBC Platinum Credit Card
Receive a full annual fee refund and save $149 if you meet the $6,000 spend requirement. Enjoy a balance transfer offer and platinum card benefits such as complimentary insurances and concierge services.
19.99% p.a. 0% p.a. for 15 months $149 p.a. Go to site More info
NAB Low Rate Credit Card
The NAB Low Rate Card offers 0% p.a. on purchases and balance transfers for 15 months. This card also comes with a low annual fee.
0% p.a. for 15 months (reverts to 13.99% p.a.) 0% p.a. for 15 months with a one off 3% balance transfer fee $59 p.a. Go to site More info

* The credit card offers compared on this page are chosen from a range of credit cards has access to track details from and is not representative of all the products available in the market. Products are displayed in no particular order or ranking. The use of terms 'Best' and 'Top' are not product ratings and are subject to our disclaimer. You should consider seeking independent financial advice and consider your own personal financial circumstances when comparing cards.

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