Buying Crypto With a Credit Card Can Cost You an Extra 7% or More

by Brittney Myers | Published on Sept. 18, 2021

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A woman looking confused at her computer while holding a credit card.

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This is one time to avoid your credit cards.

Judging by the headlines, it seems like everyone and their dog is buying cryptocurrency these days. And even popular finance gurus like Suze Orman have started to recommend picking up a bit of crypto as a long-term investment.

If you are thinking about jumping on the Bitcoin bandwagon, however, you may want to steer clear of using your credit cards to pay for your crypto purchase.

Between exchange fees and issuer fees, your credit cards may very well be the worst way to invest in crypto. All told, you'll likely be looking at least 7% -- if not more -- in extra fees just for using your credit cards to make your crypto purchase.

A 2% fee (or higher) goes to the exchange

As with stocks, you'll use a crypto exchange to purchase various digital currencies. So the first fee you'll encounter when trying to use your cards to buy crypto is that charged by the exchange.

Exchanges will generally charge a credit card fee to buy crypto because credit card issuers charge a processing fee for every credit card transaction, including crypto purchases. These fees can vary a lot based on the issuer -- and even based on the specific card -- but they average around 2% of the transaction amount.

In some cases, the exchange may also tack on their own fees, above and beyond the processing fee, for allowing you to use a credit card. This could easily put your exchange fees at 3% or more.

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Oh, and this is all supposing you find an exchange that accepts credit cards in the first place. Many issuers have prohibited credit card crypto purchases entirely. So you may have to do some searching to find a reputable crypto exchange that allows credit card purchases at all.

At least 5% will go to the credit card issuer

While the exchange fees can add up, they may pale in comparison to the fees your card issuer will charge. That's because most credit card issuers categorize crypto purchases as a cash equivalent transaction.

In other words, your credit card issuer will treat your crypto purchase as a cash advance -- the same as if you used your card to pull cash out of an ATM. Cash advances have several drawbacks that basically negate any potential positives to using a card to buy crypto.

For one thing, cash advances have cash advance fees that range between 3% and 5% of the total transaction amount. So if you buy $100 worth of crypto with your card, you'll pay $5 or more in cash advance fees.

Additionally, cash advances don't have a grace period, so you'll start accruing interest on your crypto purchase as soon as the transaction hits your account. Cash advances also tend to have higher interest rates than regular purchases, so those fees will add up fast.

If you're thinking you can out-earn the fees with credit card rewards -- think again. Transactions that are classed as cash advances don't earn purchase rewards. So your favorite travel rewards card won't earn a single point or mile, nor will you see a dime in cash back.

And don't expect your crypto purchase to help you earn a sign-up bonus, either. Cash advance transactions won't count towards the spending requirement for a credit card sign-up bonus.

Better ways to buy crypto

While you should certainly avoid using a credit card to buy crypto, you have several other options. For those set on using plastic to pay, most major crypto exchanges will accept debit cards. If your debit card earns rewards, you may even score some points or cash back (but your mileage may vary here).

Perhaps the most widely accepted way to buy cryptocurrency is through an ACH transfer. This is a direct transfer of funds from your bank account to your exchange account. ACH transfers have very low processing fees, so your exchange may not charge you anything at all for the transaction.

Cryptocurrency may be all the rage these days, but you don't need to make any hasty investments. Not only should you carefully research how to buy, but you should also ensure you know what you're buying. Crypto is a volatile investment, at best, so be sure you're well informed before you dive in.

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