Exchange fees can affect your investment if you are not careful.
- Cryptocurrency exchanges generally charge a fee to buy cryptocurrencies.
- Most crypto rewards credit cards do not charge a fee to convert rewards into cryptocurrency.
- Check the math to make sure you’re not missing out on shopping rewards by opting for a crypto card over a traditional rewards card.
Thanks to its volatility, cryptocurrency is a speculative investment, at best. But that hasn’t stopped savvy — and merely curious — investors from buying Bitcoin in bundles. However, it does mean that you should only invest what your bank account stands to lose.
That said, volatility is not the only thing to consider before buying cryptocurrencies. You should also think about the costs. Almost all major brokers these days offer free investing with commission-free trading. But cryptocurrency exchanges are rarely that generous.
In fact, jumping on the Bitcoin or Ethereum bandwagon is bound to cost you. In fact, it can sometimes cost up to 7% or more depending on how you pay. However, there is a very simple way to solve both the cryptocurrency volatility problem and the additional investment costs: cryptocurrency credit cards.
Skip the exchange fees with a crypto rewards card
There is a new trend in the rewards credit card space of credit cards earning rewards that you redeem for cryptocurrency, rather than cash or points.
How do they work? Generally, you’ll earn shopping rewards at a fixed 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, let’s say you have a crypto credit card that earns 1.5% back on purchases. If you make a purchase of $100, the issuer will purchase and deposit $1.50 worth of crypto into your account immediately. In some cases, the cryptocurrency may not be purchased until the transaction has cleared or until a certain minimum threshold of rewards has been reached.
So what makes this a hack for cheaper cryptocurrencies? It all comes down to fees. When your crypto credit card rewards are used to purchase crypto, you do not pay any exchange fees for the purchase.
This means not only are you 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 trading or brokerage fees on purchase. Without these fees, you get additional value for every dollar you spend.
Crypto credit cards are still credit cards
One thing to keep in mind when it comes to crypto rewards cards is that they are still, well, credit cards, with all the possible drawbacks.
For example, you still need to apply for a crypto rewards credit card and get approved. This means that you will undergo a credit check, which comes with a hard credit inquiry. You’ll also need to make sure you pay your purchases in full each month to avoid being charged interest.
But wait, there is 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 an 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 keep maxing out the 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 are not using a different rewards credit card. As such, you could be missing out on a lot of purchase rewards. This is especially true considering that most crypto rewards cards do not have the most competitive reward categories.
Think of it this way: Let’s say you spend $100 on groceries with your crypto rewards card. At best, you could earn up to 3% on crypto. However, the best grocery rewards cards earn up to 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 affect the additional cash refund enough to make it moot. But not all exchanges charge the same fees. You just need the fee to be less than the difference in rewards for it to be worth it.
In the 3% vs. 6% example above, as long as you pay less than 3% in exchange fees to buy crypto, you will actually get ahead by using the cash back rewards card with the highest rewards rate, even with additional charges.
Credit cards with crypto rewards can be an easy set-and-forget, fee-free way to invest in cryptocurrencies. If you want to dip your toe in the proverbial pool, they could be a worthwhile option, as long as you know what you’re getting into.
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