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Can You Invest With Credit Card Rewards?

With a traditional rewards credit card, you can earn miles, points or cash back. If you have an investment rewards card, however, you can use your rewards to save for retirement or fund your child’s college expenses. But there are some potential pitfalls to watch out for. Before you invest with credit card rewards, it’s a good idea to find out what you’re signing up for.

Find out now: Which rewards credit card is best for me?

How Investment Rewards Cards Work

Earning rewards through an investment rewards card program isn’t that different from earning rewards through a standard rewards card program. You earn a set amount of points or cash based on what you spend. The Schwab Investor Card from American Express, for example, pays unlimited 1.5% cash back on eligible purchases. Fidelity offers a Rewards Visa Signature card that pays members 2% back.

The difference between these cards and a traditional cash back or points card is in the way your rewards are redeemed. Instead of getting a statement credit or a gift card, your rewards are deposited into an investment account. Schwab, for example, automatically sweeps your cash back into a Schwab brokerage account. Fidelity allows you to transfer your rewards into a retirement account, a Fidelity Cash Management Account, a 529 college savings plan or a brokerage account.

Choosing a Card

Can You Invest With Credit Card Rewards?

When comparing rewards cards, there are three things you’ll need to pay attention to. It’s important to consider how much cash or how many points you’ll earn with each card and whether there are any restrictions. For example, does the card cap your earnings once you hit a certain spending level? Can you earn more cash back for making certain purchases?

It’s also a good idea to take a look at the fees. If the card has a high annual fee, for instance, you’ll have to consider whether the rewards you’re earning really justify paying that fee.

Then there’s the foreign transaction fee. This is usually a 2% to 3% surcharge that some credit card companies apply to international purchases. If you plan to do a lot of traveling, it’s probably best to find a rewards card program that doesn’t come with a foreign transaction fee.

Finally, it’s important to check out the annual percentage rate (APR). The higher the APR, the more you’ll pay in interest if you carry a balance. If a card has great rewards but a high rate, it’s a good idea to make sure you’re only charging what you can afford to pay in full each month. Otherwise, the interest costs might outweigh the value of your rewards.

Final Word

Can You Invest With Credit Card Rewards?

Using credit card rewards to invest probably won’t make you rich. But they might give you the opportunity to boost your savings over time. That could be helpful if you haven’t made saving a priority in the past.

As you’re researching your options, it’s a good idea to evaluate the interest rates, fees and rewards carefully. The fewer fees you have to pay, the further your rewards will go in the long run.

Photo credit: ©iStock.com/andresr, ©iStock.com/Johan Swanepoel, ©iStock.com/andresr

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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