Can you use a credit card to buy crypto on coinbase

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You can buy crypto with a credit card — but don't miss the true cost

You can buy crypto with a credit card — but don’t miss the true cost

These days it really does seem like everyone has some bitcoin or another cryptocurrency jingling around in their digital pockets.

Even though the true figure is more like one in 10 Americans, that’s still a big number — and the fear of missing out on the next major price surge is real.

If you don’t have the funds to make a sizable investment, it’s tempting to reach for your credit card. After all, you can just pay it off with your crypto earnings, right?

Well, maybe — but as it turns out, buying crypto with a credit card can be extremely expensive. Until you understand the true cost, keep your Visa or Mastercard in its holster.

Can you buy crypto with a credit card?

Hands holding credit card and using laptop. Online shopping

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Though some investment brokers like Robinhood allow you to purchase cryptocurrencies directly through their platform, many people buy crypto via specialized exchanges.

Keep in mind, while it is possible to buy cryptocurrencies with credit cards, not all crypto exchanges accept them.

This includes Coinbase, the biggest exchange in the United States. On Coinbase, the only payment methods accepted in the U.S. are bank ACH (automated clearing house) transfers, debit cards, wire transfers and PayPal.

That said, plenty of exchanges do accept credit cards, including Coinmama, CEX.IO and eToro.

But just because you can buy crypto with a credit card doesn’t mean you should. Here’s why.

How does buying crypto with a credit card work?

Physical version of Bitcoin (new virtual money) and banknotes of one dollar. Exchange bitcoin for a dollar. Conceptual image for worldwide cryptocurrency and digital payment system.

Lukasz Stefanski / Shutterstock

When buying cryptocurrencies on an exchange, you have to choose a payment method to deposit cash into the exchange. From there, you trade that cash for crypto.

Funding your account using ACH (that is, connecting your bank account) is generally the cheapest route — sometimes it is even free. The same cannot be said for credit cards.

While they may be convenient, that convenience comes at a steep price.

Crypto exchange transaction fees

Cryptocurrency exchanges make money in different ways. Almost all of them take a cut whenever you trade. This is true no matter which payment method you use.

However, when you pay with a credit card, you’re hit with credit card fees on top of the normal exchange trading fees.

Credit card fees vary from exchange to exchange. Before purchasing with a credit card, google your exchange’s fees to understand what you’re getting into.

For example, to buy cryptocurrencies on Coinmama with a credit card, you have to pay:

  • Exchange rate spread: 2%

  • Commission fee: up to 3.9%

  • Credit card fee: 5%

All these fees are built into the trade price, so you may not even realize how much you are losing unless you compare it to the true exchange rate.

checkout screenshot

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Let’s say you want to buy some bitcoin. If you wanted to invest $1,000 in bitcoin through Coinmama, you’d pay:

  • $20 on the exchange rate

  • $39 commission fee (for non-loyalty members)

  • $50 credit card fee

In other words, you’d need a 10.9% return on investment just to break even on these fees.

But exchange fees are only one part of the equation. It gets even worse.

Cash advance fees

Chase, Capital One, American Express, Citi and other major American credit card issuers treat cryptocurrency purchases like cash advances.

So on top of the exchange’s fees, you’re also hit with a cash advance fee from your bank.

Cash advance fees vary by institution, but Chase and Citi, for example, charge $5 or 10% of the cash advance, whichever is greater.

So, in our $1,000 bitcoin investment example, you’re looking at an additional $100 cash-advance fee on top of the $109 in exchange fees.

In other words, by using a credit card, you’re kissing goodbye more than a fifth of your investment to fees.

To make matters worse, cash advances do not have grace periods like regular credit card purchases, which means interest starts accruing from the moment you make your purchase.

The moral of the story: To avoid expensive surprises, call your credit card company and ask how they handle cryptocurrency purchases.

Other fees

When you use a credit card to buy cryptocurrencies from exchanges based outside the U.S., you can tack on an additional foreign transaction fee — typically 3%.

Because of this, it’s a good idea to check an exchange’s location before making a purchase.

If you use a card with no foreign transaction fees — such as the Chase Sapphire Preferred or Capital One Venture — you can avoid them.

Daily limit

Some exchanges have daily limits on how much crypto you can buy with credit cards. For example, on the Bitpanda exchange, credit card deposits max out at about $3,050 per day.

In addition to the exchange’s daily limit, you also have to keep an eye on your card’s limits.

Pros and cons of buying crypto with a credit card

man holding two chalkboards with Pro and con

J.K2507 / Shutterstock

Pros

There aren’t really any pros to paying for crypto with a credit card.

Normally, credit cards offer rewards points and special protections. But since credit card companies treat crypto purchases as cash advances, you don’t accrue those benefits.

Cons

When you use a credit card, you’re slammed with multiple fees. These fees are not associated with other payment methods like ACH transfers. To see a positive return on investment after paying these fees, you must dig yourself out of a deep hole.

Other considerations

Mousetrap and bitcoin coin. Cryptocurrency scam or fraud concept.

Vitalii Vodolazskyi / Shutterstock

Before purchasing cryptocurrencies with a credit card, consider these other important factors.

Scams

Buying cryptocurrency online is still a foreign concept to millions of rookie investors. That makes them easy prey for fraudsters.

Before diving into the world of cryptocurrencies, it’s important to familiarize yourself with common scams.

One such scam involves fake crypto exchanges disguised as legitimate websites. If you fall victim to online credit card fraud, your card’s fraud protection should cover you, but it’s best to use caution and keep it from happening in the first place.

Debt

While it’s exciting to ride the crypto wave, it is still an extremely volatile investment. Avoid investing money you can’t afford to lose. If your only way to purchase crypto is by racking up credit card debt, odds are you can’t afford to lose.

Not only is going into debt to buy crypto risky, it also can pull down your credit score. Holding a higher credit card balance increases your credit utilization, which hurts your credit score.

If you plan on taking out a mortgage, auto loan or personal loan, the debt you built up with your crypto purchase can indirectly affect the rates you qualify for.

Restrictions

Some exchanges have special rules for credit cards. If you don’t read the fine print before purchasing, you may find yourself in a sticky situation.

Author’s note: I once used my card to purchase Bitcoin on eToro, planning to immediately transfer it to a secure hard wallet. After buying, I realized credit card purchases cannot be transferred off the exchange for 60 days. Oops!

Crypto as a credit card reward

Gift Card Voucher Coupon Graphic Concept

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Buying cryptocurrencies with a credit card is a bad idea, but you can use your card to get your hands on crypto in other ways.

One way is with a crypto rewards credit card. These cards are similar to traditional rewards cards, but instead of earning cash back or airline miles, you earn crypto (or you can redeem your rewards points for them).

You can also use a cash-back rewards card, then use your cash rewards to buy crypto.

Can you Buy Less than One Bitcoin?

Yes, it is possible to buy less than one bitcoin.

Each bitcoin is divisible to the 8th decimal place, meaning each bitcoin can be split into 100,000,000 pieces. Each unit of bitcoin, or 0.00000001 bitcoin, is called a satoshi.

how to buy bitcoin with paypal

When buying Bitcoin, you don’t have to buy a full bitcoin and can easily buy less than one.

Most Bitcoin exchanges will let you specify the amount of fiat currency you want to spend and in exchange sell you the equivalent amount of Bitcoin. For example, if one bitcoin is worth $250, and you want to buy $125 worth of bitcoin, you’ll receive 0.50 bitcoin–assuming there are no fees.

Vice-versa, most Bitcoin brokers also let you specify the amount of bitcoin you want and will charge you the equivalent in fiat. For example, if you want to buy 0.25 bitcoin and 1 bitcoin is $300, you’ll be charged $75.

So, yes, it’s 100% possible to buy less than one bitcoin. Companies like Coinbase will let you buy as little as $1 worth of bitcoin.

Should I leave my bitcoins on the exchange after I buy?

We strongly recommend storing any bitcoins you want to keep safe in a wallet you own. Many Bitcoin exchanges have been hacked and lost customer funds. If you don’t want to fall victim to these hacks then the easiest way is to store your coins in a wallet you control.

Can you sell bitcoins?

Out of the exchanges we listed, CEX.io is the only one that allows you to sell bitcoins to your debit card.

Will the fees for buying bitcoins with debit card or credit card ever get lower?

Probably not. Payment processors like Visa, Mastercard and American Express charge their merchants very high transaction fees.

Card Average Fee Charged to Merchant Mastercard 1.55% – 2.6% Visa 1.43% – 2.4% Discover 1.56% – 2.3% American Express 2.5% – 3.5%

Exchanges get charged EVEN higher rates than these since buyers are so likely to make chargebacks. After all, if someone steals your credit card, buying Bitcoin is about the best place to charge money to your card.

Credit card companies have to eat those fraudulent charges when you report the fraud. So they pass that cost to the exchanges who then pass it on to you – the buyer using the credit card to buy bitcoins. The fees could get lower if some exchange cuts a deal with a credit card processing company to get lower fees.

Can I buy other cryptocurrency using this method?

Depends on the exchange. Coinbase, for example, allows you to buy Litecoin and Ethereum with credit card. Coinmama, on the other hand, supports Bitcoin, Litecoin and Ethereum

Why are Fees so High when I Use Credit Card?

Credit Cards exist to make buying items fast and easy. When you use a credit card, you are actually borrowing money from the card issuer. Because you are not actually spending your money when you use a credit card, it means its very easy to cancel a charge or refuse to pay the balance off. Credit card companies tend to side with their customers over the merchant as well. Card companies also charge the merchant around 3% to process the payment.

For all of these reasons, accepting credit card purchases is quite expensive. Chargebacks, fees, and fraud all must be considered when accepting a credit card and that cost comes out in the form of an increased price for whatever you are buying.

This is especially difficult when the merchant is selling something like Bitcoin, because once you have it, the merchant cannot reverse the transaction to get it back.

Why do I have to buy bitcoins with credit card in order to buy other cryptocurrencies?

This is because most other cryptocurrencies are traded against Bitcoin. The liquidity for altcoins against the US dollar is often very poor. But on the other hand, the liquidity against BTC is usually very good. So it’s easy to get other currencies once you have bitcoins, but not easy to get other currencies without having BTC first.

Did banks ban buying cryptocurrency with credit card?

In the USA, some banks are blocking users from buying cryptocurrency on credit. Some banks may treat crypto purchases with a credit card as cash advances that have additional fees associated with them. This would seem a resaonable practice since crypto is usable instantly and is basically like cash. This may be why debit card purchases appear to still be working. European users still appear to be able to buy crypto with a credit card.

On June 11, 2018 there were reports that Wells Fargo blocked all its customers credit cards from buying BTC.

wells fargo bans bitcoin buys

At that time, most credit cards had already been blocked by Visa and Mastercard from buying bitcoins as well. But, Wells Fargo said they may allow purchases of cryptocurrency again down the line.

Written by Jane