Should you use a credit card to buy stocks?

The risks involved with using credit cards to invest are likely to outweigh the potential benefits.

When looking to invest, it may be tempting to consider using a credit card cash advance to buy stocks.

This is where you borrow money on a typically low-interest credit card and invest it, with the aim of returning a profit after having paid off the credit card balance.

While this may seem like an easy way to get started, additional charges and high interest could mean losing more money than you originally invested.

“The interest charged on a credit card would typically be more than what is earned as a return from any acquired shares over the short-term,” explained Rachel Springall, Finance Expert at Moneyfactscompare.co.uk.

Should you use a credit card to invest?

There’s always a risk when investing your own money as the value of your investments could fall and leave you with less than what you started with.

It’s important to keep in mind when investing with a credit card that you are taking on additional debt that will need to be repaid no matter how well your investments may perform.

The interest and extra charges on your credit card can quickly build if you fail to pay off the balance and could outweigh any returns.

This could leave you with expensive debt and financially worse off than before, so make sure to consider whether this is the right choice for you.

“Before investing it’s wise for consumers to improve their overall financial wellbeing, such as clearing debts and creating a flexible emergency fund, such as with an easy access account,” commented Springall.

“Anyone concerned about the pros and cons of any investment would be wise to seek advice before they commit. It is important to check that the firm has FCA authorisation,” she added.

The FCA’s SmartInvest campaign urges investors not to use credit cards when buying stocks, emphasising that aside from potentially losing your investment, your credit score could also be negatively affected.

This could make it harder to get credit in the future, even if you kept up with the repayments.

Alternatives to consider

A stocks and shares ISA is an alternative way to invest in the stock market, and like other ISAs, these accounts protect your earnings from tax. Under the current ISA allowance, you’ll be able to invest a maximum of £20,000 which is spread across any other ISAs you may have.

Over longer periods, a stocks and shares ISA has the potential to offer high returns, but it’s important to note that your capital is still at risk, and you could lose your money.

You can visit our stocks and shares ISA chart for more information.