The stock market is no longer the exclusive stomping ground it once was. Trading has been seriously democratized, and investors don’t have to pay a hefty commission fee or call their broker (or pay a visit to the exchange floor) just to make a trade. Internet trading with cash from your bank account is helpful, but what if you could buy stocks with a debit card to make it even easier?
In many cases, you can.
Knowing how to fund your brokerage account with a debit card to buy stocks is simple, but it’s good to know the lay of the land before making any withdrawals.
TL;DR
- You don’t have to fund your brokerage account with a bank transfer. In many cases, you can use a debit card.
- Make sure you’re not over-drafting your checking account to fund your brokerage account to avoid any declined transactions.
- Using a debit card to buy stocks is more accessible than other options because it doesn’t rely on your bank’s technology for ACH transfers.
Fund your investing account with a debit card
When you buy stocks online, you do so through a brokerage account.
To get started, you need to fund your account. Once your account is funded, you’re able to make trades based on the available cash balance in your account. Unless you’re buying stocks on a margin account, you can’t overdraft a brokerage account when buying stocks. If the market value of the stock increases from the time you start your trade to the time it’s executed, exceeding your available cash, the trade simply ceases to go through.
The most common way of funding your brokerage account is through a transfer from your checking account, also known as an ACH transfer. Newer trading platforms are making it possible for people to fund their accounts with a debit card instead, adding one more option for the average person to trade securities.
In short, a debit card is just another way of funding your brokerage account, which allows you to buy stocks.
Pros of using your debit card to buy stocks
Being able to pay for stocks with a debit card may not seem like much, but it’s an issue of accessibility.
Using a debit card is also a simple way to dabble in fractional shares. Some brokerages allow you to purchase portions of a stock for less than the cost of a full share. You might use fractional investing if you want to test the waters with a new stock before going all in on a long-term investment, or if you’re starting with a small amount of money.
All things considered, it may be preferable for you to use your debit card than it is to link your bank account for an ACH transfer.
What are the risks when you buy stocks with a debit card?
Like any form of investing, there are things to be mindful of before you buy stocks with a debit card.
Make sure you’re not overdrafting your checking account to fund your brokerage account. Banks usually charge about $35 for an overdraft fee, which can really put a dent in your money situation.
The checking account associated with your debit card is also commingled with everyday funds (for groceries, rent, and anything else you need to pay for). You’ll want to set some sort of budget or allocation for your investing money so you don’t tap into your reserved funds.
Using a debit card to pay back funds spent on margin can be tricky if you invest more than you’re able to pay back right away.
Even with these risks in mind, using a debit card is much less risky than a credit card. Most brokerages, like Public, don’t allow credit card funding. If you do use a credit card, your credit card company may charge you a cash advance fee for the transfer. When paired with investment fees, these costs can add up. If you fail to pay your credit card bill in full, you risk having to pay high interest rates and getting in debt that’s hard to climb out of.
Should you use a limit order when using a debit card to buy securities?
Brokerages that let you use a debit card are giving you an extra way to fund your account, not necessarily letting you buy stocks directly with your card. So if you purchase a stock and its market value increases right after, the transaction will only be completed if you have enough cash in your brokerage account.
Still, a limit order is helpful for many stocks, especially those that are in a volatile period. A limit order is just a way for you to cap the share price before submitting the trade. If the market value exceeds that limit you placed, the trade won’t go through.
Can you buy stocks with a debit card if your account is below a certain balance?
Some brokerage accounts have a minimum deposit amount. If you’re working with a full-service brokerage that caters to investors with high net worths, you might have to deposit at least $10,000. Even Fidelity requires a $2,500 initial deposit if you plan to purchase mutual funds, or $5,000 if you’re trading on margin. Not everyone has this money laying around in their checking account, unclaimed by life’s many expenses.
Other brokerages, like Public.com, don’t have a minimum, and you can deposit as little as you want. These are often the newer, more accessible platforms that also offer fractional investing.
If you want to start small and grow your wealth from there, a brokerage that accepts debit card funding with no minimum deposit may be the way to go.
What to know about your credit report when funding a new brokerage account (with or without a debit card)
When you open a new brokerage account, the bank might run a soft inquiry on your credit score. This can temporarily ding your credit report, so don’t be alarmed. The inquiry will come off of your score eventually.
The brokerage won’t need to perform a hard inquiry, which can impact your score more heavily.
When it comes to your credit report, you should pay more attention to your existing debt. If you have debt (especially high-interest debt), you may not want to buy stocks on margin. Public.com does not offer margin trading accounts.
Bottom line
Can you buy stocks with a debit card? You sure can. Just make sure you’re not overdrafting your checking account to fund your brokerage account—and that you’re not trading on margin, especially if you already have high-interest debt.