How a Credit Card Could Help Fund Your Retirement

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You can effortlessly bulk up your retirement savings account by signing up for this type of credit card.

Key points

  • Credit cards can help your finances if used properly.
  • Some cards can make it easier to save for retirement.
  • This can work effectively if you get a cash back card and save the rewards.

Saving for retirement is crucial so that you have the security you deserve as a senior. And, to build the nest egg you need, you'll have to make responsible financial decisions throughout your life.

Most people don't think of credit cards as a tool to help them boost their retirement savings accounts. But, the reality is, the right card can actually help you bulk up your retirement savings accounts with no extra effort on your part.

Here's how.

Credit cards can help you save for retirement if you do this

So how can credit cards help you effortlessly increase the amount you're saving for your later years? It's simple. You can use the cash back you earn from your card to invest for your retirement.

See, cash back credit cards offer you a percentage back of all purchases, such as 2% back. You'll have a choice as to how you redeem this money, but some card companies allow you to deposit it directly into a brokerage account that you can use to invest for retirement. While you may not be able to opt to have it deposited directly into a tax-advantaged account, such as an IRA, you can deposit the money into a taxable brokerage account and invest it within that account or move it into your retirement account once it's been deposited with your broker.

Other cash back cards allow you to get the cash back as a statement credit or as a check in the mail, but it won't be deposited directly into a brokerage account. In either of these cases, once you receive the check or get the statement credit, you could manually move the money into your investment account.

If you want to make absolutely sure your cash back rewards go into a retirement account, it's best to opt for automatic deposits into a brokerage account. That way, you won't be tempted to do anything else with the money, such as spending it on impulse purchases.

Whichever of these approaches you take, when you use your cash back rewards to invest for the future, then every purchase you make will get you closer to hitting your retirement savings goals. You'll be getting this money back for things you would have purchased anyway, so it can help build your nest egg without any lifestyle changes or extra sacrifice on your part.

One caveat to be aware of

Using credit card cash back rewards to save for retirement is effortless and a great way to increase your investments. But there is one catch: You don't want to carry a balance on the cards.

If you carry a balance rather than pay the cards off in full each month, you will end up paying interest on the cards. The interest rate will likely be much higher than the percentage of cash back you earn and will likely be higher than the return on investment that comes from buying income-producing assets with your cash back. So, by going into debt and committing to paying interest, you'll be tying up money that you otherwise could have used to advance your financial goals and grow your wealth.

You can avoid this by budgeting carefully to make sure you don't overspend on your cards and by setting up automatic payments to pay your balance in full each month. With this technique, you will avoid interest charges entirely and every single time you use your card and your cash back is deposited into your brokerage account, you'll get one step closer to becoming a wealthy retiree.

Alert: highest cash back card we've seen now has 0% intro APR until 2024

If you're using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR until 2024, an insane cash back rate of up to 5%, and all somehow for no annual fee. 

In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes. 

Read our free review

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