Credit Card Bitcoin Buys: Is It Possible?

Bitcoin is the world's largest cryptocurrency by market capitalization, and it trades on several exchanges across the globe. It is possible to buy Bitcoin and other cryptocurrencies with a credit card, but it can be difficult and is generally inadvisable due to high fees and interest rates.

Most large U.S. credit card companies do not allow the purchase of cryptocurrency, while others penalise cardholders with fees. Some major cryptocurrency exchanges, like Coinbase, don't accept credit cards at all.

If you do choose to buy cryptocurrency with a credit card, you will need to research your credit card and exchange options carefully, as there are only a few credit card issuers and crypto exchanges that offer this option.

Credit card and exchange compatibility

Credit Card Compatibility

Before using a credit card to invest in Bitcoin, it's crucial to verify if your card supports Bitcoin purchases. Some credit card companies explicitly prohibit the use of their cards for cryptocurrency transactions. Additionally, certain cards may have restrictions or limitations on such purchases. It is recommended to contact your credit card company or refer to their policies to understand their stance on cryptocurrency transactions.

Exchange Compatibility

Not all cryptocurrency exchanges accept credit card payments. Popular exchanges like Coinbase, for instance, no longer allow users to add new credit cards to their accounts. Therefore, it is essential to choose an exchange that explicitly supports credit card purchases. Examples of exchanges that accept credit cards include Binance, Kucoin, eToro, Crypto.com, and Kraken. These exchanges may have specific requirements and limitations, so be sure to review their terms and conditions carefully.

Fees and Charges

When using a credit card to invest in Bitcoin, various fees and charges may apply. These can include transaction fees, credit card processing fees, cash advance fees, foreign transaction fees, and more. It is important to calculate the total cost, including all applicable fees and charges, before proceeding with a purchase. Additionally, some exchanges may charge higher fees for credit card transactions than for other payment methods, so it is worth comparing fees across different platforms.

Security and Protection

Using a credit card to invest in Bitcoin can offer certain security benefits. Credit cards are not directly linked to your personal assets, providing an extra layer of protection for your bank accounts. However, it is important to choose reputable and secure exchanges to minimise the risk of fraud or theft of your personal information, including your credit card details.

In summary, when considering credit card and exchange compatibility for investing in Bitcoin, it is essential to research and verify the compatibility of your credit card and chosen exchange. Be mindful of the fees and charges associated with credit card transactions and prioritise secure and reputable exchanges to protect your personal and financial information.

Credit card transaction fees

The average credit card processing fee ranges from 1.5% to 3.5% of the total value of the transaction. However, when purchasing cryptocurrencies with a credit card, these fees can be even higher. Cryptocurrency exchanges typically charge a transaction fee of 1% to 2% for credit card purchases, plus an additional credit card processing fee of up to 3.75%. On top of that, your credit card company may charge its own processing fees, including cash advance fees, cash advance interest rates, and foreign transaction fees.

Before using a credit card to purchase cryptocurrencies, it is important to research the fees associated with the specific exchange and credit card company. These fees can significantly impact the overall cost of the transaction and may not be worth the convenience of using a credit card.

High APRs

When you use a credit card to buy Bitcoin, your creditor may treat the transaction as a cash advance, which typically has a much higher annual percentage rate (APR) than regular purchases. The average credit card APR is currently above 19%, but if your creditor treats the transaction as a cash advance, your APR could be twice as high.

Credit card companies charge a higher APR for cash advances because they consider them to be riskier than regular purchases. This higher APR means that you will pay more in interest charges over time. For example, if you owe $1,000 on a card with a 20% APR, you will pay approximately $14.85 in interest per month.

In addition to the higher APR, there are other drawbacks to using a cash advance:

• Creditors charge a fee as high as 5% of the transaction amount.
• There is no grace period, meaning interest charges start accruing immediately.
• You are unlikely to earn credit card rewards on the purchase.
• Promotional APR offers (like an 0% introductory purchase or balance transfer APR) do not apply to the transaction.

Because of these high APRs and additional fees, it is generally not recommended to use a credit card to purchase Bitcoin or other cryptocurrencies.

Foreign exchange fees

Foreign transaction fees are a common type of fee that can be incurred when using a credit card to purchase Bitcoin or other cryptocurrencies. These fees are assessed by the credit card issuer and are typically charged as a percentage of the purchase, often around 3%. For example, if an individual spends $5,000 on a credit card with a 3% foreign transaction fee, they will be charged an additional $150 in fees. It is important to note that these fees can also apply when purchasing from a non-US retailer online, even if the individual is not physically overseas.

Foreign transaction fees should not be confused with currency conversion fees, which are charged when individuals opt to have their transactions presented in US dollars. Currency conversion fees tend to be lower, usually around 1% of the purchase amount.

To avoid foreign transaction fees, individuals can use travel credit cards such as the Chase Sapphire Preferred Card or the Capital One Venture Rewards Credit Card, which waive these fees. Additionally, some airline credit cards like the Delta SkyMiles Blue American Express Card do not charge foreign transaction fees. Using cash instead of a credit card may also be an option, but it is important to consider the costs associated with exchanging cash and the risks of carrying large amounts of cash while travelling.

Credit card security

Secondly, it is important to understand the risks associated with providing credit card details. While entering credit card information on these platforms is generally safe due to their security measures, it is always advisable to conduct thorough research and carefully review the platform's security protocols and reputation. This includes reading reviews and assessing their data protection policies.

Additionally, it is worth noting that some credit card companies may block crypto purchases or process them as high-interest, high-fee cash advance loans. It is crucial to check with your credit card issuer to understand their policies and potential fees associated with crypto transactions.

To enhance credit card security, it is recommended to use a credit card that is not linked to your personal assets. This adds an extra layer of protection in an industry that is prone to security issues. Furthermore, two-factor authentication and cold storage of crypto assets can further safeguard your investments.

Finally, it is important to be cautious of fraudulent transactions and always verify the legitimacy of the platform before proceeding with any transactions. Overall, while investing in Bitcoin with a credit card can be secure, conducting due diligence and choosing reputable platforms are essential steps to mitigate risks.

Frequently asked questions