Heads Up: The Fed continues to raise rates — up 3% this year — making credit card debt even costlier.
Pay it off today with a low fixed-rate personal loan. View your rate —>

Credit Cards Are for Spending, Not Saving, Right? Not Necessarily.

By Tricia Romano · November 01, 2022 · 3 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Credit Cards Are for Spending, Not Saving, Right? Not Necessarily.

Whether you’re new to saving for retirement or an old pro, you can use your credit card for funding your IRA or other retirement accounts.

How exactly does this work?

5 Steps for Using a Credit Card To Save for Retirement

Step 1: Learning About IRAs & Other Retirement Funds

If you don’t already have a retirement account, it’s a good idea to familiarize yourself with the different types that are available. You may want to consider opening an IRA, stocks, or a mutual fund — a package of stocks and bonds that includes many different companies — to help offset risk.

💡 Recommended: Understanding the Different Types of Retirement Plans

Step 2: Finding the Right Credit Card

Once you’ve figured out how and where you want to invest, you can begin your search to find the right credit card; specifically, a cash-back credit card. These cards offer a percentage back (most offer about 2%) for every dollar you spend. But instead of putting that money directly into your regular bank account or using “points” (which usually don’t have as much value) to shop or get discounts, you can flip that money into your shiny new retirement fund, where it will earn compound interest.

💡 Recommended: How to Choose a Credit Card That Fits You

Step 3: Putting Your Cash-back Rewards To Work

As with any credit card, it’s important to keep your spending in check so that you can pay it off every month. After all, paying interest pretty much negates the whole cash-back thing. But it can be a good idea to put big purchases on your card (as long as you can pay it off that month).

So if you need a new computer for work, you can buy it with your credit card. Bonus: Your card may offer insurance on such a purchase. So it’s a good idea to read the fine print and find out.

Same goes for paying rent with your credit card, as long as your landlord doesn’t charge a fee for credit card payments. Your monthly bills too. The average American pays about $8,600 a year in bills (not including rent or mortgage). If you have to pay for these services anyway, why not earn a few hundred dollars a year by paying them with your credit card?

Again, in order to really benefit from these cash-back rewards, it’s important to pay off your credit card bill every month. Paying interest will just eat into your rewards.

💡 Recommended: Guide to Cash-Back Rewards

Step 4: Mixing & Matching Your Cash-back Cards

Some cards give you a flat cash-back rate. Others offer tiered rewards for specific purchases like groceries, gas, or dining out. If you want to get the most cash-back rewards possible, it’s a smart idea to look at your spending. Figure out what areas you spend the most on each month, and choose a card (or multiple cards) that offer the best rewards for those categories.

Step 5: Automating Your Payments & Investments

To make sure you don’t give in to temptation, you may want to consider automating the cash-back payments to your retirement fund. While you’re at it, you can automate your monthly bill payments so you don’t have to lift a finger to earn those cash-back rewards. You can do the same with your monthly credit card payment to ensure you always pay it on time.

💡 Recommended: Guide to Investing With Credit Card Rewards

The Takeaway

The keys to saving successfully for retirement are to start early, pay off debt quickly, and be consistent with investments. That’s especially true if you want to retire early. And while credit cards can be dangerous when used carelessly, they can obviously offer a great advantage for people who can pay off their credit card bills every month.

If you want to get started on saving for your retirement with a credit card, you can check out SoFi’s very own credit card, which offers 2% cash-back rewards points. Pair it with a SoFi IRA, and you’re in business.

FAQ

How do credit cards help save money?

Credit card companies are essentially providing you with free loans, but only if these two things are true: First, you pay off your bills in full every month to avoid accruing interest. And second, you’re paying no annual fee. In that case, you can say that credit cards are saving you money.

Can I fund my IRA with a credit card?

Yes, you can actually fund your IRA with a credit card. The way it works: Investment companies like Schwab, Fidelity, and Morgan Stanley partner with credit cards offering cash back. The cash back you earn on those cards can be directly deposited into your IRA with that company. You’d have to spend $300,000 to earn $6,000 in cash back — the 2022 IRA limit for people under 50 — but it’s possible.

How do I contribute to an IRA?

The first step is to open an IRA account, either through your employer, a bank, traditional investment company, or online financial institution. Then make one or more deposits up to the annual limit. Deposits can come directly from your paycheck, an online transfer, or even a cash-back credit card.


Photo credit: iStock/RgStudio

1See Rewards Details at SoFi.com/card/rewards.
The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
Members earn 2 rewards points for every dollar spent on eligible purchases. If you elect to redeem points for cash deposited into your SoFi Checking or Savings account, SoFi Money® account, fractional shares or cryptocurrency in your SoFi Active Invest account, or as a payment to your SoFi Personal, Private Student, or Student Loan Refinance, your points will redeem at a rate of 1 cent per every point. If you elect to redeem points as a statement credit to your SoFi Credit Card account, your points will redeem at a rate of 0.5 cents per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SOIN0622041

All your finances.
All in one app.

SoFi QR code, Download now, scan this with your phone’s camera

All your finances.
All in one app.

App Store rating

SoFi iOS App, Download on the App Store
SoFi Android App, Get it on Google Play

TLS 1.2 Encrypted
Equal Housing Lender