If you’re accustomed to using a credit card for all your purchases, you might be surprised to learn that buying bitcoin and other cryptocurrencies could be a no-go. If you try, you could be limited in two ways: by the exchange where you’re trying to buy the cryptocurrency or by your own credit card issuer.
Some big cryptocurrency exchanges, like Coinbase, don’t accept credit cards. Coinmama and CEX.io say they accept credit cards, but only Visa and Mastercard. And even then, that doesn’t mean your credit card company allows it.
Most large U.S. credit card issuers don’t allow the purchase of cryptocurrency, while others penalize cardholders with fees.
Even if you can use your credit card from, say, a smaller bank, to exchange dollars for bitcoins, you might not want to. And for what it’s worth, NerdWallet doesn’t recommend it.
Fees from the exchange
In addition to a fee the exchange charges for its service, it might charge an additional fee for using a credit card. For example, the exchange might charge you a percentage of the transaction amount to exchange dollars for bitcoin or other cryptocurrency.
Coinmama, for instance, trades in eight cryptocurrencies, including bitcoin. Coinmama requires a minimum $60 purchase and charges a transaction fee of 5.9%, plus an additional 5% fee for credit card purchases. So, for every $100 of crypto you buy, you’re paying $10.90 if you buy with a credit card, leaving you with just $89.10. If you view the purchase as an investment, you would need to earn a 12% return just to get back to even.
Cash advance penalties from the card issuer
Your credit card issuer is likely to consider the crypto purchase a cash advance, as if you used your credit card to take money out of an ATM terminal.
That’s bad for you because it probably comes with these downsides:
Cash advance fee. This is a one-time fee charged when you take your advance, usually 3% to 5% of the amount. For example, if you take out a $200 cash advance, a fee of $6 to $10 will be tacked on to your account balance.
Higher interest rate. Many cards charge a higher annual percentage rate for cash advances than for regular purchases.
No grace period. If you pay your balance in full monthly, your credit card usually gives you a grace period of at least 20 days to pay off your purchase before you’re charged interest. Cash advances, though, start to accrue interest from day one.
Lower credit limit. Some credit cards have a separate cash advance credit limit, which is lower than the overall credit limit.
No credit card rewards. If your credit card issuer considers a crypto purchase a cash equivalent, your spending probably doesn’t qualify for rewards, such as cash back, travel points or miles. Similarly, it won’t count toward your required spending to earn a sign-up bonus.
Again, it depends on the issuer of the card whether a cryptocurrency purchase is considered a cash advance. Before making a purchase, it’s a good idea to call the number on the back of your card and ask.
Foreign exchange fee. If the exchange is based outside the U.S., you might incur a foreign exchange fee if your credit card charges one. A typical fee is 3%.
Scams. If you’re not careful about choosing a reputable currency exchange, you might have your personal information, including your credit card number, stolen.
Debt. If you’re using a credit card to go into debt to buy cryptocurrency, you’re taking on high risk. You’ll be paying exorbitant interest on a volatile investment.
Credit utilization. Making big crypto purchases uses up your available credit, a negative for your credit scores.
Crypto as a credit card reward
Some startup credit card issuers have floated the idea of issuing bitcoin or other cryptocurrencies as credit card rewards for making purchases on the card. In a roundabout way, that could be a method of using a credit card to earn bitcoin.
Alternatively, you could just get a cash-back credit card and use that money to buy crypto on your own terms and timing.