bitcoin

If you’re going to join the roller coaster ride of investing in Bitcoin or other cryptocurrencies, buying virtual currency can take more effort than it does to make typical investments online.

You’ll likely have to buy it through an exchange — a website to trade one currency for another such as U.S. dollars for Bitcoin— and for that you might need a credit card. But buying cryptocurrencies with a credit card is risky and can come with high fees.

Here are some things to check with the exchange and credit card you’re going to use before buying cryptocurrencies:

Are credit card purchases allowed?

While finding an exchange that accepts credit cards is easy enough, but six large financial institutions have blocked consumers from buying cryptocurrency with a credit card: JP Morgan Chase, Bank of America, Wells Fargo, Citigroup, Capital One, and Discover. Policies can change, however, so check with your credit card provider to see if it allows such purchases.

The biggest reason for the denials was the wild swings in Bitcoin and other cryptocurrency prices. Buying an investment with borrowed money, and then seeing that investment drop steeply, could drop your incentive to pay that credit card bill.

Other reasons include lack of mainstream acceptance, high risks of fraud and volatility in the cryptocurrency market.

High risk of credit card debt

Investing in other currencies, also called speculating, can be risky for credit card users who then carry the balance over each month and don’t pay it off completely immediately. They could have credit card debt that could cost them a lot of money.

A December 2017 study by LendEDU of active investors found that 22 percent didn’t pay off their credit card balance after buying Bitcoin. Their plan was to use Bitcoin profits to pay off the balance, which is a risky strategy.

Worse than that, 70 percent of those who didn’t pay off their credit card balance after buying Bitcoin said they believed owning Bitcoin is worth the interest expense.

Credit cards have an average APR of 17 percent, which is interest debtors will have to pay monthly. That’s a high amount of interest to pay on something that can drop in value by half or more overnight.

Convenience fee

Using a credit card, or even a debit card, at a cryptocurrency exchange can require paying a convenience fee to the exchange. This fee can make purchases quicker, but more costly.

A payment method that’s usually free is using your checking account and routing number — called ACH for short — that pulls money directly from your checking account. This can take a few days to post to your account.

It’s a popular method of transferring money. The same amount of people in the LendEDU study who said they use a credit card to fund a Bitcoin purchase — 18 percent — also use the ACH bank transfer process to buy Bitcoin. Most buyers — 33 percent — used a debit card, which is about the same as using cash.

Foreign transaction fee

If the exchange is outside the United States, your credit card may charge a foreign transaction fee. This often isn’t charged when you buy something outside of the U.S., but a cryptocurrency exchange may result in one.

The fee is usually 3 percent of the transaction amount — $30 for every $1,000 of cryptocurrency you buy.

Cash advance fee

Your credit card issuer may consider it a cash equivalent transaction or cash advance when buying virtual currency, resulting in more fees.

A typical credit card cash advance fee is $5 or 10 percent of the transaction amount, whichever is greater. Every $1,000 of cryptocurrency could cost you a $100 fee.

Cash advances also have a higher APR on credit cards, and don’t include grace periods to pay off, meaning you’re paying interest immediately. Cash advances also won’t earn you any credit card rewards and the purchase won’t count toward any spending requirements to earn a sign-up bonus on a new credit card.

Limit of cryptocurrency purchases

The exchange you’re using may place a daily or weekly limit on how much cryptocurrency you can buy with a credit card. This is a good safety measure for your protection, giving you some time before your limit resets and you can buy again.

Impact on your credit score

The more of your credit limit you use, the more it affects your credit score. Credit utilization is a major factor in credit scores, so having a big balance because you’ve just bought a lot of cryptocurrency can hurt your credit score. If you miss payments or carry the debt for awhile, your score could drop more.

Most people invest with cash they already have on hand. Investments should be money you’re willing to lose.

If your investment strategy includes cryptocurrencies and you want to use a credit card, start by checking with your credit card company about possible fees and if it even allows such purchases. Financial markets are constantly changing, and credit card issuers may turn back to allowing cryptocurrency purchases if they become safer and more widely accepted.