- Cryptocurrency exchanges usually charge a fee to buy crypto.
- Most crypto rewards credit cards don't charge a fee to turn rewards into crypto.
- Check the math to make sure you're not missing out on purchase rewards by going with a crypto card instead of a traditional rewards card.
Exchange fees can eat into your investment if you're not careful.
Thanks to its volatility, cryptocurrency is a speculative investment, at best. But that hasn't stopped savvy investors -- and the merely curious -- from buying Bitcoin by the bundle. It does mean, however, you should only ever invest what your bank account can handle losing.
That said, volatility isn't the only thing to consider before buying crypto. You should also think about the costs. Nearly every major stock brokerage these days offers fee-free investing with no-commission trades. But crypto exchanges are rarely so generous.
Indeed, jumping on the Bitcoin or Ethereum bandwagon is bound to cost you. In fact, it can sometimes cost as much as 7% or more depending on how you pay. However, there's a really simple way to solve both the issue of crypto's volatility and its extra investment costs: crypto credit cards.
Skip exchange fees with a crypto rewards card
There's a new trend in the rewards credit card space of credit cards that earn rewards you redeem for cryptocurrency, rather than cash or points.
How do they work? In general, you'll earn purchase rewards at a set rate, like a cash back card. But instead of redeeming for cash or a statement credit, the amount you earn is used to purchase the crypto of your choice, which is deposited into your associated crypto account.
For some crypto credit cards, the crypto purchase is made as soon as you swipe your card. For example, say you have a crypto credit card that earns 1.5% back on purchases. If you make a $100 purchase, the issuer will purchase and deposit $1.50 worth of crypto into your account right away. In some cases, the crypto may not be purchased until your transaction has cleared or until you've hit a certain minimum rewards threshold.
So, what makes this a hack for cheaper crypto? It comes down to fees. When your crypto credit card rewards are used to purchase crypto, you don't pay any exchange fees for the purchase.
This means you're not only using essentially free money to invest in crypto -- few people add credit card rewards to their overall budget -- but you're also investing without those pesky exchange or brokerage fees on the purchase. Without these fees, you're getting extra value out of every dollar you invest.
Crypto credit cards are still credit cards
One thing to keep in mind when it comes to crypto rewards cards is that they're still, well, credit cards -- with all of the potential drawbacks.
For instance, you still need to apply for a crypto rewards credit card -- and get approved. This means you'll undergo a credit check, which comes with a hard credit inquiry. You'll also need to be sure you pay off your purchases in full every month to avoid being charged interest fees.
But wait, there's more. In addition to the usual credit card application hurdles, you also need to make sure you have a crypto account before you apply. (Your cryptocurrency has to live somewhere.) Of course, you can't just have any old crypto account. Most crypto credit cards are issued or co-branded by crypto exchanges or brokerages, so you'll need to open a crypto account with the company that issues your card.
Make sure you're still maximizing rewards
Another thing to consider before getting a crypto rewards card is the opportunity cost. If you use a crypto rewards card to make purchases, this means you're not using a different rewards credit card. As such, you could be losing out on lots of purchase rewards. This is especially true considering most crypto rewards cards don't have the most competitive rewards categories.
Think of it this way: Say you spend $100 on groceries with your crypto rewards card. At best, you could potentially earn up to 3% back in crypto. However, the top grocery rewards cards earn as much as 6% back -- double the rewards.
If you're determined to use your credit card rewards on crypto investments, the extra cash back may not matter; exchange fees could eat into the extra cash back enough to make it moot. But not all exchanges charge the same fees. You only need the fee to be less than the rewards difference to make it worthwhile.
In the 3% vs. 6% example above, as long as you're paying less than 3% in exchange fees to purchase crypto, you're actually coming out ahead by using the cash back rewards card with the higher rewards rate, even with the extra fees.
Crypto rewards credit cards can be an easy, set-it-and-forget, fee-free way to invest in cryptocurrency. If you want to dip your toe into the proverbial pool, they could be a worthwhile option -- so long as you know what you're getting into.
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Brittney Myers owns Bitcoin.
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