A gold-backed credit card is a type of credit card that’s linked to a gold account or a gold investment. It allows the cardholder to use his or her gold as collateral or as a payment method for purchases. A gold-backed credit card can offer some benefits and drawbacks for the cardholder, depending on his or her financial goals and preferences. Keep reading as the precious metals experts from First National Bullion, the silver and gold dealers Scottsdale collectors rely on for outstanding quality and service, explain what you need to know about gold-backed credit cards, including the pros and cons of using one.
What Is a Gold-Backed Credit Card?
A gold-backed credit card is issued by a bank or a financial institution that also offers gold accounts or gold investments. A gold account allows the customer to buy, sell, store, or transfer physical gold or gold certificates. A gold investment involves buying, selling, or holding gold or gold-related products, such as coins, bars, ETFs, or futures.
A gold-backed credit card is linked to the customer’s gold account or gold investment, which serves as the source of funds or the security for the credit card. The customer can use his or her gold-backed credit card to make purchases online or offline, just like a regular credit card. However, instead of using fiat currency or money, the customer uses his or her gold or its equivalent value.
How Does a Gold-Backed Credit Card Work?
Gold-backed credit cards work in different ways, depending on the type and terms of the card. However, there are some general steps involved in how a gold-backed credit card works:
- The customer applies for a gold-backed credit card from a bank or a financial institution that offers such a service. The customer needs to have an existing account or open a new gold account or gold investment account with the same provider.
- The provider sets the credit limit and the interest rate for the card based on the customer’s credit score, income, and gold balance or value. The provider also determines how the customer can repay the balance, such as by selling the gold, transferring money from another account, or paying in cash.
- The customer receives the gold-backed credit card and can use it to make purchases anywhere credit cards are accepted. The provider converts the purchase amount from the local currency to the equivalent amount of gold based on the current market price and deducts it from the customer’s gold account or investment.
- The customer pays the monthly statement balance by selling his or her gold, transferring money from another account, or paying in cash. If the customer doesn’t pay the balance in full, he or she will incur interest charges and fees based on the card agreement.
What Are the Pros & Cons of Using a Gold-Backed Credit Card?
A gold-backed credit card can offer some advantages and disadvantages for the customer.
- It can provide an alternative way of using or accessing your gold without having to sell it or physically deliver it
- It can protect your purchasing power from inflation or currency devaluation, as gold tends to retain or increase its value over time
- It can diversify your portfolio and reduce risk by investing in a different asset class than fiat currency or money
- It can offer some rewards or perks from the provider, such as cash back, discounts, or insurance
- It can expose you to market volatility and price fluctuations, as gold prices can change rapidly and unpredictably
- It can incur higher fees and charges than regular credit cards, such as annual fees, transaction fees, conversion fees, storage fees, or delivery fees
- It can have lower credit limits and higher interest rates than regular credit cards, as providers may consider them riskier or less profitable
- It can have legal or regulatory issues in some countries or regions that restrict or prohibit the use of gold as a medium of exchange
What about Gold-Backed Debit Cards?
It’s also worth noting there are financial products known as gold-backed debit cards. These cards are linked to accounts where users hold physical gold, and their spending is limited to the amount of gold they have in their accounts. While they provide a unique way to transact in gold, they aren’t traditional credit cards that extend a line of credit.
Gold-backed debit cards offer some benefits to those who want to hold and use gold for transactions. These include:
- Hedge against inflation – Since the value of gold tends to rise with inflation, these cards can provide a safeguard against the eroding purchasing power of fiat currencies
- Global usability – Gold-backed debit cards can be used for international transactions, offering a way to avoid currency exchange fees and fluctuations
- Diversification – Holding physical gold through a debit card account can be a way to diversify your assets and protect against economic uncertainties
Gold-backed credit cards can offer some benefits and drawbacks for customers, depending on their financial goals and preferences. Before applying for a gold-backed credit card, you should carefully weigh the pros and cons and compare the different options that are available in the market.
Whether they’re looking for expert advice on precious metals pricing or they want to sell gold bullion or gold coins, Scottsdale residents should work with trustworthy precious metals dealers who offer high-quality service and have years of experience. Call on the industry-leading professionals at First National Bullion when you’re ready to invest in precious metals, including gold, silver, platinum, and palladium. Give us a call today at (855) 919-2536.
The statements made in this blog are opinions, and past performance is not indicative of future returns. Precious metals, like all investments, carry risk. Precious metals and coins may appreciate, depreciate, or stay the same in cash value depending on a variety of factors. First National Bullion does not guarantee, and its website and employees make no representation, that any metals for sale will appreciate sufficiently to earn the customers a profit. The decision to buy, sell, or borrow precious metals and which precious metals to purchase, borrow, or sell are made at the customer’s sole discretion.