How Do Investment Credit Cards Work?

They could help boost your retirement savings

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Earning credit card rewards for travel, hotels, and other benefits is great, but did you know you can also apply credit card rewards to an investment account? Well, you can, and it includes accounts for retirement, college savings, and more. Some investment credit cards even offer bonus dollars when you apply rewards to your investments—although you’ll want to pay attention to the fine print. Read on to learn where you can get one, plus ways to maximize the rewards.

The Basics of Investment Credit Cards

Investment credit cards pay rewards similar to cash-back credit cards. Instead of redeeming your rewards for a statement credit or a deposit to your bank account, your rewards are deposited into an account where you can invest in stocks, bonds, index funds, or mutual funds. There, your money has the potential to earn returns based on the market and dividends.

Most investment cards are associated with brokerages and banks, such as TD Ameritrade, Fidelity, Merrill Lynch, and Charles Schwab. 

Earning investment credit card rewards is the same as other rewards credit cards. Each time you swipe your credit card, you’ll earn a certain amount of rewards. For example, you could earn 1% cash back for every $1 spent.

Then, when you reach the minimum redemption amount (if your credit card has one) you can opt to redeem your rewards. You may be able to deposit your cash-back rewards into a variety of accounts, such as a 529 college savings plan, IRA HSA, and more—it all depends on the card and issuer. With some cards, you can even put money into your taxable brokerage account, and invest in a favorite company.  

Qualifying for an Investment Credit Card

As with most rewards credit cards, you generally need to have good to excellent credit to qualify for an investment credit card. Qualifying also depends on your income, the number of credit cards you have open, and the amount of credit card debt you’re carrying. 

You’ll also need to have an investment or brokerage account that qualifies for the rewards. 

A few investment credit card options on the market right now include the Fidelity Rewards Visa Signature Card, TD Ameritrade Client Rewards Card, Bank of America Cash Rewards Credit Card, Barclays Upromise Mastercard, Schwab Investor Card from American Express, and American Express Platinum Card for Schwab.

How Can You Earn Investment Rewards? 

Pay attention to the rewards structure. Some credit cards pay a flat rate on all purchases while others have a tiered rewards structure, offering higher rewards on certain categories of spending. Maximize the tiered rewards earned by spending more in the higher paying categories.

You can also invest without an investment credit card. Redeem cash-back credit card rewards as a check or bank account deposit, and then make a contribution to any of your existing investment accounts.

Maximizing Your Investment Rewards

Contributions from your investment credit card can make a large impact over time.

For example, let’s say you have a credit card that pays 2% cash back on all your purchases. If you spend $2,000 in one month, you’ll have $40 in rewards to deposit into your account. If you did that every month, you’d have $480 in one year. If your account sees a 7% annual return, your monthly investments would grow to $21,458 in 20 years, minus any fees associated with the account.

These results reflect assumed market performance, not a guarantee of how the market will actually perform. Your investments can lose value, which will make your credit card rewards less valuable.

Some investment credit cards may also provide a bonus when you redeem cash-back rewards into an investment account, or bonuses for a minimum spend over a few months, which can then be redeemed for additional investing opportunities.

What to Watch Out for With Investment Credit Cards

Fees

Keep an eye out for any investment credit card charging high fees, which could reduce the actual amount you get back in rewards, over the course of time. This could apply to transaction and penalty fees like a balance transfer fee or a foreign transaction fee, which may be higher than you’d earn in transaction rewards.

You’ll get more benefits from lowering ongoing credit card costs, in general. Pay your balance in full each month and avoid paying interest on your purchases, which negate the overall value of the earned rewards.

Limits and Penalties

When redeeming points or dollars for retirement or educational account purposes, don’t let your account contributions run afoul of IRS contribution limits, which could lead to tax-time paperwork and penalties.

If you’re funding tax-advantaged accounts in a number of ways, you could potentially surpass limits. Only you are responsible for penalties if you contribute beyond the maximum allowed per year. 

Minimum Balance Requirements

Some plans have minimum balance requirements for investment account deposits, such as 2,500 points or $250, or 5,000 points or $500. You might also have to wait up to 30 days for the funds to post to your linked investment account. 

While you’re waiting to accrue the minimum or for the deposit to go through, you’re potentially missing out on investing that money or even earning interest in an interest-bearing account. Keep this in mind if you’re trying to build up your investment account sooner rather than later—directly depositing funds might be faster. 

Other Terms and Conditions

Be sure to read all of the terms and conditions for your card. There may be details associated with your card that could prevent you from earning or investing rewards.

For example, credit card issuers may discontinue investment rewards programs at any time. While you’ll have access to any funds that have already been deposited into your retirement account, you may lose any rewards you haven’t yet redeemed, as well as the ability to earn rewards in the future. 

The Bottom Line

An investment credit card may be an easier way to add extra money to your retirement account, but it’s important to still be mindful of your spending. Taking on debt to earn more investment credit card rewards isn’t a smart idea. Even if you’re a heavy spender, you probably won’t be able to fund your full retirement account with just credit card rewards. And it may not be wise to solely rely on your credit card spending for contributions to your retirement account.

Instead, make fewer credit card purchases and deposit funds straight into your retirement account, rather than running up an unmanageable credit card balance. The earlier you start saving for retirement, the more time your money has to grow, and the more you’ll have for your retirement overall.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

Article Sources

  1. Fidelity. Calculate Your Potential Rewards. Accessed Feb. 19, 2020.

  2. Internal Revenue Service. "Retirement Topics - IRA Contribution Limits." Accessed Feb. 19, 2020.

  3. Fidelity. "Program Rules for Fidelity Investments American Express Card with WorldPoints Rewards," p. 5. Accessed Feb. 19, 2020.

  4. TD Ameritrade. "TD Ameritrade Client Rewards Important Credit Card Terms and Conditions," p. 4. Accessed Feb. 19, 2020.