Buying cryptocurrency isn’t usually as simple as whipping out your credit card. In fact, many credit card issuers don’t allow their cards to be used to purchase cryptocurrency. As a general rule, I’d advise against using a credit card to buy crypto.
Pros and cons of using credit cards to buy cryptocurrency
While credit cards offer benefits such as convenience, generous rewards programs and buyer protections, these aren’t as applicable to crypto transactions. For starters, major issuers such as Bank of America, Capital One, Citi and Wells Fargo do not permit their credit cards to be used to buy cryptocurrency.
Among the credit card issuers that allow crypto purchases, these transactions are typically treated as cash advances, which involve fees and high interest rates. Cash advances don’t earn rewards, either. Plus, cryptocurrency exchanges often tack on their own credit card processing fees, which are separate from card issuers’ cash advance fees.
Consider exchange fees and cash advance penalties
Binance, one of the most popular cryptocurrency exchanges, accepts Visa and Mastercard credit cards when permitted by the issuer. It charges a fee “up to around 2 percent,” which it touts as one of the lowest credit card acceptance fees in the industry. That can still add up in a hurry, however, and the fee applies to debit card transactions as well. Coinmama, a competitor, charges around 3 percent for credit and debit card transactions.
When credit card transactions are permitted for crypto purchases, cash advance fees — commonly 3 to 5 percent of the transaction amount — typically apply. That’s true for other cash and cash-like transactions such as ATM withdrawals and casino chips, too.
Worse, a high interest rate (often around 30 percent) starts accruing immediately. When you pay your credit card bills in full, you almost always get a grace period (21 days or more) between when the statement arrives and when interest starts to accrue, but that grace period doesn’t usually apply to cash advances.
And the fees don’t stop there. Commission fees are frequently charged by crypto exchanges. As Coinbase puts it, “When you buy, sell, or convert cryptocurrencies on Coinbase, fees are charged. These fees are calculated at the time you place your order and can be influenced by factors such as your chosen payment method, order size, market conditions, jurisdictional location, and other costs we incur to facilitate your transaction.”
These commission fees are the hardest crypto transaction fee to avoid, but using a credit card could potentially subject you to three fees (one for credit card processing, another for a credit card cash advance and a third for the standard commission fee), instead of just a single commission charge. Funding your crypto purchases by transferring funds directly from your checking account is likely to be a much cheaper alternative.
Which cards let you redeem rewards for crypto?
An easy, fee-free way to obtain cryptocurrency is to redeem credit card rewards for crypto. However, this has gotten harder in recent years. In 2021, the SoFi Credit Card* was the first credit card to allow rewards to be redeemed directly for cryptocurrency. The feature was discontinued about a year ago, although the card still allows other redemptions such as cash back.
“Crypto winter,” the downturn that plagued the crypto market in 2022, killed off some crypto-oriented credit cards entirely. BlockFi, a once-popular crypto exchange, shut down its BlockFi Rewards VisaⓇ Signature Credit Card* around the same time it filed for bankruptcy in late 2022. The Upgrade Bitcoin Rewards Visa was discontinued as well.
A few options still exist. The Gemini Credit Card* gives cardholders instant crypto rewards without any transaction fees. Cardholders don’t even need to wait for the end of the billing cycle to receive these rewards. They get 3 percent back on dining, 2 percent back on groceries and 1 percent back on everything else, and rewards can be distributed in Bitcoin, Ether or other popular cryptocurrencies, as directed by the cardholder.
The Venmo Credit Card* is another possibility. It has a user-friendly structure that doles out 3 percent back on users’ top eligible spending category each monthly billing cycle, 2 percent back on their second-largest eligible spending category and 1 percent back on everything else. This is primarily a cash back card, but cardholders can elect to have their cash back converted into crypto without the usual transaction fees.
What to consider when choosing cryptocurrency rewards over other rewards?
Kristy Kim, the founder and CEO of TomoCredit, told me something back in 2019 that has had a lasting impact on how I consider this question. “Younger people see rewards as upside,” Kim told me at the time. Back then, TomoCredit debuted a credit card with crypto rewards. It soon pivoted to cash back and is currently having success with a credit-building offering.
Perhaps TomoCredit’s early crypto focus was ahead of its time. I’m admittedly not a big crypto guy, but I have to say, Kim’s viewpoint opened my eyes. The idea of turning rewards (basically free money) into more free money is appealing. The value could go down, of course, but gambling with house money is a fun concept.
If you’re thinking of getting into the crypto market, converting credit card rewards into crypto is an easy, inexpensive way to dabble. It’s more streamlined and fee-friendly than putting your own funds into crypto.
And by the way, this approach doesn’t need to be limited to crypto. The FidelityⓇ Rewards Visa Signature Credit Card* is a 2 percent cash back card which allows rewards to be deposited into any eligible Fidelity account. You could use a Fidelity brokerage account, for example, to convert your rewards into a wide variety of stocks, bonds and other investments. That card doesn’t allow direct rewards-to-crypto transfers, but it’s possible to create a link between a Fidelity brokerage account and a Fidelity Crypto account.
The bottom line
Cryptocurrencies haven’t become mainstream payment instruments yet, but despite a very rough 2022, they have rebounded and remain a popular (albeit highly risky and volatile) asset class. Bitcoin, for example, skyrocketed a dazzling 155 percent in 2023, reclaiming most of the value it lost during a stomach-churning 64 percent freefall in 2022.
Investing in crypto clearly isn’t for the faint of heart, but if you’re ready to take the plunge, just make sure not to risk more than you can afford to lose. And strongly consider funding your account with a bank account transfer rather than a credit card, which can be more difficult and expensive. Dipping your toes into the crypto pool by redeeming credit card rewards for crypto might be the safest and easiest way to get started.
Have a question about credit cards? Email me at email@example.com and I’d be happy to help.
*Issuer-required disclosure statement
Information about the SoFi Credit Card, BlockFi Rewards VisaⓇ Signature Credit Card, Gemini Credit Card, Venmo Credit Card and FidelityⓇ Rewards Visa Signature Credit Card has been collected independently by Bankrate. Card details have not been reviewed or approved by the issuer.
As an enthusiast and expert in the field of cryptocurrency and personal finance, my experience and knowledge span various aspects of the market, including the intricacies of buying and trading digital assets. I have closely followed the developments in the cryptocurrency space and have gained insights through extensive research and practical involvement in transactions.
Now, let's delve into the concepts discussed in the article about buying cryptocurrency with credit cards.
Credit Card Issuers' Policies:
- Major credit card issuers like Bank of America, Capital One, Citi, and Wells Fargo typically do not allow their credit cards to be used for purchasing cryptocurrencies. This restriction is crucial to be aware of when considering using a credit card for such transactions.
Pros and Cons of Using Credit Cards for Crypto:
- Pros: Convenience, rewards programs, and buyer protections that credit cards usually offer.
- Cons: Many credit card issuers treat crypto purchases as cash advances, leading to additional fees and high-interest rates. Credit card processing fees by cryptocurrency exchanges also contribute to the overall cost.
Exchange Fees and Cash Advance Penalties:
- Popular cryptocurrency exchanges like Binance and Coinmama charge fees for credit and debit card transactions. When credit card transactions are allowed, cash advance fees (commonly 3 to 5 percent) typically apply, accompanied by high-interest rates.
Commission Fees on Crypto Exchanges:
- Crypto exchanges, such as Coinbase, charge commission fees for buying, selling, or converting cryptocurrencies. These fees depend on factors like payment method, order size, and market conditions. Credit card users might face additional fees on top of standard commission charges.
Redeeming Rewards for Crypto:
- Some credit cards allow users to redeem rewards directly for cryptocurrency. However, this has become less common, and certain cards that once offered this feature have discontinued it. The article mentions the Gemini Credit Card and the Venmo Credit Card as options that provide crypto rewards without transaction fees.
Considerations for Choosing Crypto Rewards:
- The article introduces the perspective of converting credit card rewards into cryptocurrency. It discusses the appeal of turning rewards into more funds and mentions potential risks associated with the fluctuating value of cryptocurrencies.
The Bottom Line:
- Cryptocurrencies are highlighted as a popular but highly risky and volatile asset class. The article emphasizes the importance of not risking more than one can afford to lose. It suggests funding crypto accounts through bank account transfers rather than credit cards for cost-effectiveness.
Issuer-Required Disclosure Statement:
- The article concludes with a disclosure statement mentioning that information about specific credit cards has been collected independently by Bankrate, and card details have not been reviewed or approved by the issuer.
In summary, the article provides a comprehensive overview of the challenges and considerations associated with using credit cards to buy cryptocurrencies, along with alternative approaches such as redeeming credit card rewards for crypto.