Are credit cards friend or foe in the cryptocurrency world? This question has been asked many times and there are two sides to every story. There are those who believe that a credit card is an easy way for people to purchase crypto, without knowing what they’re getting themselves into. And then there are those who think allowing this type of transaction would lead to more scams and hacks of personal information from exchanges. Which side do you find yourself on?
1. Pros and cons of using a credit card to purchase crypto
a) Pros of using a credit card to purchase crypto:
i. Being able to buy large amounts without too much trouble from your bank or issuer
ii. Anonymity – buying with cash can make it easy for the merchant (or whoever gets their hands on your card) to see what type of transactions you are making, whereas using a credit card will allow you to purchase cryptocurrency anonymously.
iii. If you’re not sure whether or not you want to keep the currency, then cancelling after making the transaction is possible and can give full refund – this is different than cash because there are no refunds available with cash transactions.
iv. If you’re unsure of the legality of crypto, you can purchase with credit and keep it until your curiosity has been satiated for at least thirty days – if you’re still interested after that then cancelling is possible.
v. Pros to using a credit card instead of cash: offers protection from fraud as long as there’s no chargeback; incur interest on the money you borrow, so interest is paid whether or not the transaction goes through.
b) Cons of using a credit card when purchasing crypto:
i. There are risks and some people may find ways to scam others out of their money even with help from merchants who are willing to accept credit cards and bitcoin – this means that there are risks when using credit cards to purchase cryptocurrency.
ii. Those who use a card will incur interest on the money they borrow, whereas if you use cash then there is no interest paid whether or not the transaction goes through.
iii. Depending on your bank and issuer it can take days for them to process transactions made with crypto, whereas with cash the transaction will be processed immediately.
iv. The high limit on your credit card may cause you to miss out on opportunities for investment or profit as the value of cryptocurrency fluctuates – this is not a risk that exists when using cash because there’s no interest incurred whether or not the transaction goes through so users can invest in more profitable opportunities.
c) Pros of using cash to purchase cryptocurrency:
i. You will not have to worry about interest rates because there is no risk of it if you use cash, whereas when a credit card is used there’s the possibility of paying interest even for transactions that don’t go through – this can be costly in the long run.
ii. You may not be able to purchase large amounts without too much trouble from your bank or issuer, depending on the limits they set – this is not a problem when using cash because you can buy as little or as much as you want with no issues and there are no limits imposed by banks or issuers unless it’s a withdrawal limit.
iii. If you’re new to cryptocurrency and unsure whether or not you want to keep it, then using cash will allow for a better chance of making the right decision – this is because when using your card there are limits on how much cryptocurrency can be purchased with each transaction in order to protect against fraud so depending on the limits set by your bank or issuer, you may only be able to purchase a small amount of cryptocurrency and then have to wait for the limit on your card to reset before being able to buy more.
iv. Some banks will not allow certain transactions that are considered high risk – this means some people who want to use cash as opposed to their credit cards will have less trouble with banks because cash transactions are not considered high risk.
v. If you’re skeptical of cryptocurrency then using your credit card is a safer bet because there’s no way for the fraudster to steal it if they use their own cards – this is why some people may want to experiment by trying out crypto purchases through their credit cards and seeing how they go.
3. Which credit card is best for buying cryptocurrencies?
- With the Amex EveryDay Credit Card, you can access the crypto-buying power of American Express without paying an annual fee. Just remember that your transaction will qualify as a cash advance — which means you’ll instantly start accruing interest at a rate above 26%. The card offers a competitive rewards system for everyday purchases, especially if you use it regularly enough to earn the 50% point boost when you make 30 or more purchases during a billing period. However, your crypto purchases will not be counted towards that total as they are not eligible to earn rewards.
- The Alliant Cashback Visa Signature Credit Card is a rare Visa card that allows crypto purchases — but you’ll still find the same cash advance hurdle as the other cards on this list. This means that you will have to pay a minimum fee equal to $10 or 3% of the total transaction. The card gives 2.5% cashback on all purchases, but not cash advances, up to $10,000 per billing cycle. The industry-leading rewards are not free. There is a $99 annual charge, but the first year it is waived.
- The Cash Magnet Card from American Express offers a flat and unlimited 1.5% cash back on every purchase you make — but Amex doesn’t consider crypto transactions as purchases. You’ll be charged a $10 cash advance fee or 5% of the transaction total, depending on which is higher. Additionally, you’ll immediately start earning interest at over 26% This card has a nice 0% APR period, but you won’t be able to cash advance with it. However, you can transfer your balance from a high-interest card to this Amex and enjoy the 0% finance fees to pay off the debt.
- USAA was one of the first banks to invest in crypto exchange Coinbase and was named one of the most Bitcoin-friendly banks in America. Account holders can access Coinbase accounts via the bank’s mobile app. They can also trade directly from their USAA checking account. But the USAA Rewards American Express Card still classifies the purchase of Bitcoin as a cash advance. To initiate a cash advance with this card, you’ll need to pay 3% of the total transaction amount. One positive about the card is that it doesn’t have an APR for escalated cash advances. The transaction will still start accruing interest, but at the same rate you would for regular purchases.
- With the Blue Cash Everyday Card from American Express, you’ll pay no annual fee and earn as much as 3% cash back on your everyday purchases — but not on cash advance transactions that include cryptocurrency purchases. This convenience will come with some fees. Cash advance fees on this card include the increased cash advance APR as well as $10 or 5% of the amount of each cash advance, whichever is greater. These fees can quickly spiral out of control if you do multiple crypto transactions each month with your card.
4. The dangers of purchasing Bitcoin on a credit card without understanding the risks involved
The risk of fraud: Whether the card is stolen or a thief makes unauthorized purchases on your credit, you can lose both your purchase and any money in that account if this happens. You won’t be able to trace who used it last- so there’s no way to recover what was lost, either.
The high interest rates–especially on cash advances: If you take out a cash advance, the interest rate can be up to 26%. This is much higher than what most people expect from their credit cards. You’ll also have all of your purchases count as a cash advance if they’re made with Bitcoin–meaning that your transactions will start accruing interest right away.
5. How to use your debit or cash instead of your credit card when making purchases online
Idea: if you don’t want to use your credit card for crypto purchases, find out how much you can deposit in advance with a debit or cash.
The limit on most debit cards ranges from $500 to about $2000 per transaction depending on the type of account holder and bank. The average person will probably be able to make up to two transactions before depleting their account.
If you’re interested in using your credit card to purchase cryptocurrency, there are some pros and cons that need to be considered. The pros of purchasing crypto with a credit card include the possibility of protection from fraud as long as there’s no chargeback; the interest on money borrowed is paid whether or not transaction goes through, whereas when cash is used then if it doesn’t go through then you don’t incur any interest at all. On the other hand, one drawback for those who use their cards instead of cash includes incurring high rates which may cause them to miss out on opportunities for investments because they can only buy small amounts before having to wait until their limit resets (depending on what limits were set by banks).
However, many people find it useful to experiment by using their credit cards to purchase cryptocurrency first before deciding whether or not they want to keep it.