Funding CDs with Credit Cards
And the biggest benefit of them all.. you can fund them with credit cards!
Following up to our previous post on funding bank accounts with credit cards, here we share a similar method: Funding a Certificates of Deposit (CD) with a credit card. The pros and cons of this method are similar to the previous method, so we’ll keep this post brief.
What is a CD?
Borrowing from a more reliable source:
A certificate of deposit, or CD, is a type of savings account offered by banks and credit unions. You generally agree to keep your money in the CD without taking a withdrawal for a specified length of time. Withdrawing money early means paying a penalty fee to the bank.
Simply put, it is an account that you put money in, and you cannot withdraw it for some period of time. When the time period is up, you are guaranteed your initial investment plus some amount of interest. If you withdraw the funds before the time is up, you will be penalized.
Now fortunately, some institutions allow you to fund your CD using a credit card.
The great thing is you can do this as many times as you want. Once your CD expires, you can go ahead and fund a new one! This is unlike bank account funding, which is typically 1-time only.
Are there any risks associated with this?
There are a few obvious risks with this play that you should be aware of.
First, if you withdraw your money before the agreed-upon time period, you will be penalized some amount of money. You should read the fine-print in your agreement with the financial institution to see the specific penalties. This will probably be some monetary penalty, on the order of $20.
Now, this risk comes back to rule #1 of manufactured spending: Don’t play this game with money you might need anytime soon!
The second point, not so much a risk, is the opportunity cost of putting your money in a CD. Say you are putting your money in a 12-month CD that will earn you 1% interest. Now, with that same amount of money, you could have put it in a high-yield savings account that would have earned you 4-5% interest. So you are giving up some amount of potential interest by putting your money in a CD. Of course, hopefully by doing MS, you are earning a significant greater amount of value by putting your money in a CD.
Which accounts can I fund with a credit card?
Evansville Federal Teachers Credit Union offers $1,200 in credit card funding for new accounts. Your Chexsystem report is not pulled for subsequent CDs.
For those in WA and certain areas of ID & OR. GESA CU allows CD purchases w/Visa, MC or Discover. Up to 5K. Min maturity of 3 months. Your Chexsystem report is pulled for each CD opened.
Hanscom Federal Credit Union offers $2,000 in credit card funding for new accounts, including American Express. Your Chexsystem report is pulled for each CD opened.
KeyPoint Credit Union offers $1,250 in credit card funding for CD per month. Min maturity 1 month. Your Chexsystem report is pulled for each CD opened.
