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Credit cards can do a variety of things: Buy items, facilitate auto-billing, earning rewards, and more. Some might even call them the Swiss Army Knife of the financial world.But, can credit cards be used to help build a retirement nest egg? The answer is, yes.
There is a small handful of credit cards with rewards programs structured to allow you to deposit cash rewards into retirement accounts. These rewards are in lieu of cash back, airline miles, or points.
These cards, while relatively unknown, are very attractive products because they offer what no other rewards program offers: Wealth building capabilities.
Unfortunately, the number of cards that offer retirement rewards is very small. In fact, I was only able to find five of them. The cards offer rates and terms comparable with garden-variety rewards cards and some offer slightly higher credit limits than their non-reward peers.
American Express and Fidelity Brokerage Services
American Express has a partnership with Fidelity Brokerage Services and backs three such investment credit cards.
These cards allows the holder to convert the rewards points earned into cash deposited into a brokerage account, a 529 college savings plan or other retirement accounts, like an IRA. They also pay 2% cash back for your retirement account compared to only 1% for traditional cash back rewards programs.
If you frequent merchants that don’t take the American Express card, then no worries. Visa partnered with Fidelity to offer an investment rewards card, Visa Signature credit card.
This card is more like a traditional cash back card and pays 1.5 points for every dollar you spend up to $15,000 and then 2 points after. This Visa card can be used to fund brokerage accounts, 529 accounts and IRAs.
And, my favourite thing about these American Express cards and the Visa card? No annual fees.
Upromise, Barclays Bank and MasterCard
For those of you who live and love Upromise, you’ve got an option too. Barclays Bank issues a Upromise branded MasterCard with tiered cash back rewards, depending on where and how you use the card.
The cash back can be deposited into a Upromise 529 college savings plan, into a high yield savings account or can be credited toward a Sallie Mae serviced student loan.
Credit Card and Retirement Savings Rules Still Apply
When choosing whether or not to use any credit card, including the aforementioned investment reward cards, be aware that the card issuer will go through their normal underwriting and approval process. These rewards cards tend to be reserved for people who have strong credit reports and credit scores.
When using the cards you’ll want to try your best to spend responsibly. If you revolve a balance, then you’ll start paying interest. When you pay interest on a rewards credit card you’re essentially funding your own rewards program with the interest fees.
Finally, these investment rewards cards are great for supplemental retirement efforts. They are not designed to be your only means of retirement funds.
50 dollars here, 50 dollars there will add up over a long period of time but it’s not enough to be your nest egg. And, while these investments can grow over time, they can also lose value because you’re going to be choosing what stocks or funds to buy with the value deposited into an IRA or a brokerage account.
If you’re not comfortable with risk or red numbers then stick to standard cash back credit cards.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognised credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.