How to Buy Stocks & Bonds on Credit Cards

Use credit card convenience checks to add cash to your stock account.

Investing in the stock market is all about timing. In theory, an investor should buy low and sell high to make a profit. However, if you are suddenly short of cash when you feel the timing is right to buy a stock, it can be quite frustrating to have to sit on the sidelines. If you are in a pinch for cash, there is a way to tap your credit cards to get the money supply you need.

Things You'll Need

• Credit card
• Convenience check
• Brokerage account

Instructions

1. Request a convenience check from your credit card company. Many credit card companies will send you convenience checks without you even requesting them. However, if you do not receive them regularly, call the credit card company and request a convenience check. They may also call this a "balance transfer check" even though it functions the same way a normal check would.

2. Look at the associated interest rate and terms on the convenience check. Because the credit card wants to make money on the cash you are borrowing, it will attach an interest rate to your convenience check. This interest rate may be the same as your normal card rate, or it may be a teaser rate with a built-in period of time. For instance, the convenience check might offer you 1.9 percent interest for 12 months and then your regular interest rate thereafter until the loan is paid off.

3. Write the check to your brokerage account. Usually these checks can be used up to the limit of your credit card. Make the check out to your brokerage firm, including your account number in the memo section. Be sure to sign and date the check. Also, make sure to endorse the check on the back.

4. Deposit the check to your brokerage account. You can either walk the check into a branch location or mail the check to the brokerage house.

5. Invest the money in the stock market. Once the check has cleared, you are free to buy and sell stocks with the money from your credit card. Remember though, the more time that money stays invested in the market without paying back the credit card, the more money you will pay in interest.

6. Make your credit card payment. When you use a convenience check and the balance is placed on the credit card, you will be required to make at least the minimum monthly payment on that money. Continue to make those payments to keep your credit card in good standing.

Tips & Warnings

• Beware of transaction fees associated with convenience checks. At times, credit cards attach a percentage fee to using convenience checks. These fees typically range from 3 to 5 percent. For example if you deposit $10,000 into your brokerage account with a 3 percent fee, you will be charged an additional $300 for that money. This is aside from any interest.

• If you lose money in the stock market, you will still have to pay the balance on your credit card. While this can be a very effective trick if you pick a stock correctly, it can be quite painful if the stock takes a dip in price.

References

• The Truth About Credit Cards: Convenience Checks
• Bank Rate: Convenience Checks: Convenient for Who?