Funding CDs with Credit Cards

And the biggest benefit of them all... you can fund them with credit cards!

Following up on our previous post on funding bank accounts with credit cards (https://www.thecreditchronicles.com/blog/manufactured-spending-by-funding-bank-accounts), here we share a similar method: funding a certificate 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 reliable source, the Consumer Financial Protection Bureau explains that a CD is a savings product where funds generally stay deposited for a set term; early withdrawal usually triggers a penalty. Learn more: https://www.consumerfinance.gov/ask-cfpb/what-is-a-certificate-of-deposit-cd-en-917/

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.

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 a one-time opportunity.

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. 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 significantly 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 (https://etfcu.org/) offers $1,200 in credit card funding for new accounts. Your ChexSystems report is not pulled for subsequent CDs.

For those in Washington and certain areas of Idaho and Oregon, GESA Credit Union allows CD purchases with Visa, Mastercard, or Discover, up to $5,000, with a minimum maturity of three months. Your ChexSystems report is pulled for each CD opened.

Hanscom Federal Credit Union (https://www.hfcu.org/) offers $2,000 in credit card funding for new accounts, including American Express. Your ChexSystems report is pulled for each CD opened.

KeyPoint Credit Union (https://kpcu.com/) offers $1,250 in credit card funding for a CD per month, with a minimum maturity of one month. Your ChexSystems report is pulled for each CD opened.