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Investing With Credit Card Rewards: Tips for Maximizing Cash Back Earnings

By Dan Miller · July 18, 2022 · 5 minute read

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Investing With Credit Card Rewards: Tips for Maximizing Cash Back Earnings

Responsible credit card usage can add hundreds if not thousands of extra dollars to your bottom line each year. Many credit cards offer rewards that you can earn with each and every purchase. You can choose a credit card that helps you earn airline miles, travel rewards, or cash back.

Before applying for or using a credit card, you’ll want to make sure that you have the financial ability and discipline to pay off your credit card statement in full, each and every month. If you don’t, the interest and/or fees will likely exceed any rewards you might earn. But if you do, you might consider investing with credit card rewards to further grow your funds.

Recommended: Tips for Using a Credit Card Responsibly

What Are Credit Card Rewards?

Just like knowing what a credit card is, it’s important to understand what credit card rewards are. Many credit card companies offer credit card rewards as an incentive for you to apply for and regularly use their credit card.

These rewards can be airline miles, other types of travel rewards, bank-specific points, or straight cash back. The credit card you choose determines the kind of credit card rewards that you’ll earn.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

Types of Credit Card Rewards

If you have a rewards credit card, there are several different kinds of credit card rewards that you can earn.

Cash Back Rewards

If you have a cash back credit card, you’ll earn cash back with every purchase. Some cash back credit cards earn different rates of cash at different types of merchants, while others earn a flat cashback rate no matter where you use the card.

Travel Rewards

Another popular type of credit card rewards are a variety of different kinds of travel rewards. You might get an airline credit card that earns airline miles for a specific airline or hotel points good for stays at a particular chain of hotels. Other travel rewards credit cards offer rewards points that you can use at a flat rate on any type of travel purchase.

Bank Points

Some banks offer credit cards where you earn points that are proprietary to that bank or credit card company. Many times, these points can be used like cash on purchases, or for travel-related purchases.

Guide to Investing Your Credit Card Cash Back Rewards

If you have a credit card that earns cash back rewards, you can often redeem them in many different ways.

Direct Deposit

One way to get your credit card cash back rewards is through direct deposit to a checking or savings account that you own. You might set up your cash back rewards to automatically transfer to your account once they reach a certain threshold, like $25. You might also be able to set up your account to regularly transfer your cash back rewards every month or every quarter.

Paper Checks

If you prefer something that you can tangibly hold, you can also request that your credit card cash back rewards are mailed to you via a paper check. Some credit card companies may charge a fee for mailing paper checks, so make sure you won’t be charged a fee before choosing this option.

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Statement Credits

Another way you might access your cash back rewards is through a statement credit. With a statement credit, your cash back rewards are applied directly to your credit card balance. This will lower the amount that you need to pay in order to completely pay off your balance off in full.

How Do Credit Card Rewards You Can Use for Investing Work?

Before using one, it’s important to understand how credit cards work, and how credit card rewards that you can use toward investing work. An investment credit card is similar to a cash back credit card in that you earn rewards that work like cash. But instead of redeeming your rewards for a statement credit or via direct deposit, you invest your cash back rewards in an investment account.

Tips for Maximizing Your Credit Card Cash Back Reward Earnings

Enjoying credit card bonuses is one way that you can maximize your credit card cash back earnings.
Many credit cards offer an initial welcome offer where you get a bonus amount if you meet certain spending or other criteria in the first few months of having the card. That can really supercharge your credit card cash back reward earnings.

If your cash back credit card earns a higher rate in certain categories or at certain merchants, make sure to use it where it gets the highest value.

Pros and Cons of Investing Your Credit Card Cash Back Rewards

Here is a look at some of the pros and cons of investing your credit card cash back rewards:

Pros of Investing Your Credit Card Cash Back Rewards Cons of Investing Your Credit Card Cash Back Rewards
Cashback and other rewards are not taxable. If you’re not paying off your balance in full each month, interest and fees can offset any rewards earned.
Investing your rewards can help supplement other investing efforts. It’s hard for small amounts to make a meaningful impact on overall investing goals.
Investing your credit card rewards doesn’t require dipping into your budget. If your brokerage doesn’t support fractional shares, your investment options might be limited.

Recommended: How to Avoid Interest On a Credit Card

Other Investment Options

One of the best things about the cash that you earn from cash back rewards is that it’s actually cash. Cash can be used for just about anything in your budget, and so can cash back rewards.

For example, you can use your cash back rewards in an online trading platform to invest in stocks, index funds, or crypto. You can also use them to invest in real estate or other types of investments, or even use them to invest in yourself through education or job training classes.

Recommended: Can You Buy Crypto With a Credit Card

The Takeaway

If used wisely, credit cards and credit card rewards can serve as a valuable addition to any financial plan. Cash back credit cards allow you to earn money back on every purchase, as well as possibly a larger initial bonus. It’s a good idea to have a plan for how you want to use your cash back rewards, and always make sure to pay off your credit card statement in full, each and every month.

One way to use credit card rewards to fund your investments is to get a cash back credit card like the SoFi credit card. With the SoFi Credit Card, you can earn unlimited 2% cash back rewards that you can use to invest in fractional shares, cryptocurrency, or other financial goals you might have. Cardholders earn 1% cash back rewards when redeemed for a statement credit. For a limited time, new credit card holders who also sign up for a SoFi Checking and Savings with direct deposit can start earning 3% cash back rewards on all eligible credit card purchases for 365 days*. Offer ends 12/31/22.

Invest your cash back rewards with the SoFi credit card.

FAQ

Should you invest your cash back rewards?

One of the best things about cash back rewards is that they function pretty much the same as cash in any other format. So whether you directly invest your cash back rewards or use them as a statement credit and invest money from your checking account, it works out pretty much the same. The important thing to do with your credit card rewards is to not spend them mindlessly. Be intentional and make a conscious decision on the best way to spend them for your specific financial situation.

Can I buy stocks with my credit card?

Most brokerages will not allow you to directly buy stocks with a credit card. Instead, one way to invest your credit card rewards is by using a cash back credit card like the SoFi credit card. You can earn cash back with each purchase and then directly invest those funds with your SoFi Invest account.

What is the smartest way to use a credit card that has rewards?

The first thing that you’ll want to do when using a credit card is make sure that you have the financial discipline and ability to pay off your credit card in full each month. This ensures that you won’t be charged any interest or fees. Then, decide how your credit card rewards will make the biggest impact in your financial life.


Photo credit: iStock/MStudioImages

SoFi Invest®
The information provided is not meant to provide investment or financial advice. 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 pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
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.
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.
1See Rewards Details at SoFi.com/card/rewards.
You will need to maintain a qualifying Direct Deposit every month with SoFi Checking and Savings in order to continue to receive this promotional cash back rate. Qualifying Direct Deposits are defined as deposits from enrolled member’s employer, payroll, or benefits provider via ACH deposit. Deposits that are not from an employer (such as check deposits; P2P transfers such as from PayPal or Venmo, etc.; merchant transactions such as from PayPal, Stripe, Square, etc.; and bank ACH transfers not from employers) do not qualify for this promotion. A maximum of 36,000 rewards points can be earned from this limited-time offer. After the promotional period ends or once you have earned the maximum points offered by this promotion, your cash back earning rate will revert back to 2%. 36,000 rewards points are worth $360 when redeemed into SoFi Checking and Savings, SoFi Money, SoFi Invest, Crypto, SoFi Personal Loan, SoFi Private Student Loan or Student Loan Refinance and are worth $180 when redeemed as a SoFi Credit Card statement credit.

Promotion Period: 4/5/2022-12/31/2022. SoFi reserves the right to exclude any Member from participating in the Program for any reason, including suspected fraud, misuse, or if suspicious activities are observed. SoFi also reserves the right to stop or make changes to the Program at any time.

Eligible Participants: All new members who apply and get approved for the SoFi Credit Card, open a SoFi Checking and Savings account, and set up Direct Deposit transactions ("Direct Deposit") into their SoFi Checking and Savings account during the promotion period are eligible. All existing SoFi Credit Card members who set up Direct Deposit into a SoFi Checking & Savings account during the promotion period are eligible. All existing SoFi members who have already enrolled in Direct Deposit into a SoFi Checking & Savings account prior to the promotion period, and who apply and get approved for a SoFi Credit Card during the promotion period are eligible. Existing SoFi members who already have the SoFi Credit Card and previously set up Direct Deposit through SoFi Money or SoFi Checking & Savings are not eligible for this promotion.

New SoFi Checking and Savings customers and existing Checking and Savings customers without direct deposit are eligible to earn a cash bonus when they set up direct deposits of at least $1,000 over a consecutive 30-day period. Cash bonus will be based on the total amount of direct deposit. Entry into the Program will be available 4/5/22 to 5/31/22. Full terms at sofi.com/banking. SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC.

SoFi members with direct deposit can earn up to 1.80% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.80% APY is current as of 07/26/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.

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