Yes, you can buy stocks with a credit card — but here's what you need to know first

Update: Some offers mentioned below are no longer available. View the current offers here.

With the stock market down in the midst of the COVID-19 pandemic, a lot of people are taking the opportunity to expand their stock portfolio. One of the questions I've gotten a lot recently from readers who want to maximize their credit card rewards is whether you can buy stocks with a card.

A few years ago, a now-defunct company made it possible to buy stocks with a credit card without any fees. I took the opportunity to complete some big spending requirements that would have otherwise been more challenging. That company is no longer around, but there is one mobile app that still lets you buy stocks with a credit card ... with a few strings attached.

We'll take a look at this app, the fees you might incur, the risks you might be taking and alternatives you might want to consider.

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Things to know before you buy stocks with a credit card

Before you buy stocks with a credit card, it's important to take into account the various risks, fees and other factors that could cut into your profits. We're not just talking about maximizing points here -- there is serious financial risk to be aware of.

Be aware of investment fees

Buying stocks with a credit card comes with several fees. Currently only one investment app, Stockpile, allows you to do it -- and charges a 3% fee. But that's not the only fee you have to worry about: You may end up paying cash advance fees, late payment fees if you forget to pay your card on time and interest fees if your balance isn't paid off every month.

It can get expensive.

You may get charged a cash advance fee

Most credit cards charge a cash advance fee on the purchase of financial products -- a fee that can top 5%. With a $25 limit, I tested five credit cards from different issuers to see if I would be charged a cash advance fee on Stockpile purchases. None of the cards incurred these fees:

• The Blue Business® Plus Credit Card from American Express
• Chase Sapphire Preferred Card
• Hilton Honors American Express Aspire Card
• Citi Prestige® Card
• U.S. Bank Korean SkyPass Visa Signature Card

The information for the Hilton Aspire Amex card, Citi Prestige, U.S. Bank Korean SkyPass card has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.

It's risky

There are obvious risks involved in buying stocks with a credit card. For starters, the stock market can be volatile, especially during a pandemic. The rewards you earn from buying stocks with a credit card can easily be wiped out by a downturn. In these times of layoffs and high unemployment, you'll want to be extra careful and informed before making any investment decisions -- regardless of whether they involve a credit card or not.

Additionally, buying stocks with a credit card may raise some red flags with your card issuer. During these tough economic times, issuers may be extra-vigilant when it comes to spending it deems "risky." Stock purchases certainly fall into that category.The last thing you want is to get your credit card account shut down just to earn some miles.

There's also the possible negative impact this could have on your credit. Charging large stock purchases to your credit card can increase your utilization rate, which could negatively impact your credit score. And if you can't pay off your credit card every month, you'll incur interest fees that could wipe out any financial gain, let alone the value of the points you've earned.

Be aware of the tax implications

In addition to the fees imposed by Stockpile and possibly your credit card issuer, your stock investments may be subject to capital gains taxes. This can further reduce the profits (and rewards) you're earning by paying with a credit card.

Pay off your card

Regardless of what purchases you're putting on your credit card, it's essential that you pay it off every month to avoid high interest fees. Your short-term stock gains mean nothing if you're hit with a 25% interest charge by your credit card issuer. If you're investing for the long run, using a credit card may be a bad idea if you don't have other funds set aside to pay off the card.

Where you can buy stocks with a credit card?

Stockpile is currently the only place where you can buy stocks with a credit card. The app does charge a $0.99 trading fee (both when you buy and sell) plus 3% when you use a credit card or Apple Pay. This can take a substantial chunk out of your profits, so it's important to factor this into your decision.

Related Reading: The best investment apps

Which credit cards to use

If you do decide to use a credit card to buy stocks, you'll want to use one that earns the most rewards possible. As far as we know, Stockpile isn't coded as a bonus category, so you'll earn the base number of points issued by your credit card. That's why you'll want to use a card that earns more than 1 point per dollar spent or offers some kind of annual spending reward. Some good options include the following:

Chase Freedom Unlimited® – Earns 1.5% cash back on spending, which can be converted to Ultimate Rewards points.

Capital One Venture Rewards Credit Card – Earns 2 miles per dollar on all spending.

The Blue Business® Plus Credit Card from American Express – Earns 2 Membership Rewards per $1 spent on up to $50,000 in purchases per calendar year (then 1x point).

Citi® Double Cash Card – Earns 2% cash back on all spending: 1% when you spend and 1% when you pay it off. Rewards can be converted to valuable Citi ThankYou points.

Fund your brokerage account with a credit card

With so many fees involved, it's definitely worth exploring alternatives to buying stocks with a credit card. For starters you can get a cash-back credit card and then use the sign-up bonus to fund a brokerage account and buy stocks through that account. And although banks are no longer issuing big mileage bonuses for funding a brokerage account, you can earn quite a bit of cash doing so.

Fidelity Rewards Visa

The Fidelity Rewards Visa doesn't have a welcome bonus, but the card does earn 2% cash back on all spending, which gets deposited directly into your Fidelity brokerage account. Cash-back rewards provide incredible flexibility, since you're able to use them for travel or whatever you want, free of blackout dates or restrictions. And if you want to grow your investment portfolio, the Fidelity Rewards Visa can help you do just that.

For a more flexible alternative, consider the Citi Double Cash Card. Instead of using this card to buy stocks, you can transfer the cash-back rewards into your brokerage account (or convert them to Citi ThankYou rewards for high-value travel redemptions). It earns 2% cash back as well: 1% when you buy and 1% when you pay off your card.

Schwab Investor Card From American Express

The Schwab Investor Card From American Express offers a $100 statement credit after you spend $1,000 in the first three months of cardmembership. That's not the biggest bonus out there, but if you're looking for a long-term cash-back card to build up your investment account, it's an option. The card earns 1.5% cash back on everything and the funds are automatically deposited into your Schwab investment account.

If you want a card with a bigger welcome bonus and don't mind manually transferring cash into your brokerage account every month, consider the Chase Freedom (No longer open to new applicants) or Chase Freedom Unlimited. Both cards offer a $200 cash-back bonus when you spend $500 in the first three months of account opening. It's not a huge amount of cash but a nice way to pad your investment account for some of those rock-bottom stock purchases.

The information for the Chase Freedom has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.

Amex Platinum for Schwab

The Amex Platinum for Schwab is unique in that it earns Membership Rewards points that can be cashed out at a favorable ratio into your Schwab investment account. The card offers a welcome bonus of 60,000 points after $5,000 spent within three months of account opening. This bonus can be redeemed for a $750 deposit into your eligible Schwab account. We value Membership Rewards at 2 cents each and there are definitely better uses for these points, but this redemption rate is better than cashing out your points for a statement credit.

The card has the same $695 annual fee as the regular Platinum Card® from American Express (see rates and fees) and earns 5x points on flights booked directly with airlines or Amex Travel. Starting Jan. 1, 2021, earn 5x points on up to $500,000 on these purchases per calendar year. Plus you get the same travel perks, including an up to $200 annual travel credit, lounge perks and more.

Another perk unique to this card is that cardholders receive statement credits for qualifying balances in their investment accounts: $100 for holdings over $250,000 and $200 for balances over $1,000,000. I'd venture to guess that if you have balances this large in your investment account, you're not worried about a $100-$200 bonus, but it's nice to have nonetheless.

The information for the Fidelity Visa, Schwab Investor card by Amex, and the Amex Platinum for Schwab has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.

Related Reading: Best credit cards for excellent credit

Banks that pay you to fund investment accounts

If earning miles for buying stocks still sound like a good value proposition, keep in mind that you could be giving up cash. A few banks are offering substantial cash bonuses for funding brokerage accounts. Here's an overview of some of the best current offers:

Charles Schwab - up to $500

Charles Schwab offers is offering $100 when you fund a Schwab One account with as little as $1,000. Bonuses go as high as $500 for deposits of $100,000+:

• $100 for depositing $1,000-$24,999
• $200 for depositing $25,000-$49,999
• $300 for depositing $50,000-$99,999
• $500 for depositing $100,000 or more

Merrill Edge - up to $600

Merrill Edge is offering up to $600 when you deposit $200,000 or more.

• $100 for depositing $20,000 to $49,999.99
• $150 for depositing $50,000 to $99,999.99
• $250 for depositing $100,000 to $199,999.99
• $600 for depositing $200,000+

Preferred Rewards members can earn up to $300 more, depending on the account value:

• $150 for depositing $20,000 to $49,999.99
• $125 for depositing $50,000 to $99,999.99
• $375 for depositing $100,000 to $199,999.99
• $900 for depositing $200,000+

E-trade - up to $2,500

E-trade's bonuses start at $100 for $5,000. That's great for low-level investors who want a decent reward in exchange for funding a brokerage account:

• $25 for depositing $5,000-$9,999
• $50 for depositing $10,000-$24,999
• $200 for depositing $25,000-$99,999
• $300 for depositing $100,000-$249,999
• $600 for depositing $250,000-$499,999
• $1,200 for depositing $500,000-$999,999
• $2,500 for depositing $1 million+

Ally Bank - up to $3,500

Ally bank offers up to $3,500 when you fund a brokerage account. The top-tier deposit amount is pretty high, but you do get $3,500 in return.

• $50 for depositing $10,000-$24,999
• $200 for depositing $25,000-$99,999
• $300 for depositing $100,000-$249.999
• $600 for depositing $250,000-$499,999
• $1,200 for depositing $500,000-$999,999
• $2,500 for depositing $1 million -$1,999,999
• $3,500 for depositing $2 million+

Related Reading: Not traveling for now? How to maximize your reward points on other redemptions

Bottom line

It's possible to buy stocks with a credit card, but there are a lot of downsides to consider. In addition to all the fees involved, you may be giving up lucrative bonuses you could earn by funding a new brokerage account with cash. Investing in stocks is risky as it is and if you're also using a credit card, there is a host of ways that you could land in a tough spot financially.

For rates and fees of the Amex Platinum card, click here.