Credit Card Issuers Are Charging Fees for Buying Cryptocurrency

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The landscape of cryptocurrency purchases is shifting—especially for those relying on credit cards. In early February, Coinbase, one of the most widely used cryptocurrency exchanges, notified select customers that major credit card networks are now classifying digital currency transactions as cash advances. This change triggers additional fees and higher interest rates, significantly altering the cost of buying crypto with a credit card.

This move stems from updated Merchant Category Codes (MCCs) issued by payment processors like Visa and Mastercard. These codes help banks categorize transactions and apply appropriate fees. Now, when users buy cryptocurrency through platforms like Coinbase, their transactions may fall under the same category as ATM withdrawals or cash-like transactions—resulting in costly consequences.

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Why Are Cryptocurrency Purchases Now Treated as Cash Advances?

According to Coinbase’s alert, “Recently, the MCC code for digital currency purchases was changed by a number of the major credit card networks.” The new classification enables banks and card issuers to impose cash advance fees and apply higher interest rates—neither of which are collected or controlled by Coinbase itself.

Cash advances have long carried steep costs. For example, a popular Visa card charges the greater of $10 or 5% of the transaction amount as a fee, with an annual interest rate of 26.24%—significantly higher than the standard purchase APR range of 16.24% to 24.99%. Unlike regular purchases, these balances often start accruing interest immediately, with no grace period.

What Changed at Visa and Mastercard?

While Coinbase did not name specific institutions, both Visa and Mastercard confirmed involvement in reclassifying these transactions.

A Mastercard spokesperson stated via email:
"Over the past few weeks, we have clarified to acquirers—the merchant's bank—the right transaction or merchant category code to use for these types of transactions (cryptocurrency purchases). This provides a consistent view of such purchases for both merchants and issuers."

Meanwhile, a Visa representative emphasized that individual financial institutions—not Visa itself—decide whether to apply fees:
"It would be up to the individual issuer, the financial institution that issued the card, to determine any fees that they might charge for certain types of purchases, so it's not Visa. We don't issue cards."

Despite these distinctions, the practical impact remains: more consumers are seeing crypto purchases flagged as cash advances, particularly in the U.S. and Canada.

The Risks Behind the Policy Shift

Several factors likely influenced this policy shift across the credit card industry:

  1. Market Volatility: Cryptocurrencies like Bitcoin have experienced dramatic price swings. After peaking in late 2017, Bitcoin dropped more than 50%, raising concerns about speculative overreach.
  2. Debt-Fueled Speculation: Reports of individuals mortgaging homes or taking on high-interest debt to invest in crypto highlight growing financial risk.
  3. Default Risk: If large numbers of leveraged investors face losses, credit card issuers could see increased defaults.
  4. Revenue Opportunity: On the flip side, banks may also view this as a chance to generate additional revenue from emotionally driven, FOMO-based buying behavior.

By imposing higher fees and interest rates, card issuers aim to discourage impulsive or unfunded purchases while protecting their balance sheets.

How Should Crypto Buyers Respond?

Given these changes, users should rethink how they fund their cryptocurrency investments.

Coinbase continues to support multiple payment methods:

However, there’s a trade-off: while these options avoid cash advance fees, they may take several days to process. Bank transfers, especially via ACH in the U.S., can require 3–5 business days before funds clear.

For investors seeking faster access without credit card penalties, alternative strategies include:

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Frequently Asked Questions (FAQ)

Why are credit card companies treating crypto purchases as cash advances?

Credit card networks updated the Merchant Category Code (MCC) for cryptocurrency transactions, allowing banks to classify them similarly to cash withdrawals. This reflects concerns over market volatility and risky borrowing behavior among retail investors.

Will I be charged a fee every time I buy crypto with my credit card?

Not automatically—but many issuers now apply cash advance fees (typically $10 or 5% of the transaction) and higher interest rates starting immediately. Check with your card provider for specific terms.

Is buying cryptocurrency with a debit card safer?

Yes. Debit card transactions draw directly from your bank account and generally aren't classified as cash advances. However, some platforms may still limit debit usage due to fraud prevention policies.

Can I avoid fees by using a bank transfer?

Yes. Transfers from linked bank accounts usually come with no transaction fees (though processing times are longer). This method is ideal for planned investments rather than urgent trades.

Does Coinbase charge extra for credit card purchases?

No. While Coinbase previously charged a convenience fee for credit card buys (around 3–4%), it does not profit from cash advance fees imposed by banks. Those charges are entirely between you and your card issuer.

Are all credit cards affected by this change?

The reclassification applies broadly across Visa and Mastercard networks, but implementation varies by issuer. Some banks may not yet enforce the new rules, while others have fully adopted them. Always verify with your financial institution.

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Final Thoughts: Plan Ahead for Smarter Crypto Investing

The decision by major credit networks to reclassify crypto purchases underscores a broader trend: increased scrutiny of digital asset investing by traditional financial systems. While this adds friction for retail buyers, it also promotes more responsible investment habits.

Investors should prioritize funding methods that minimize debt exposure and avoid compounding interest. Whether you're new to crypto or expanding your portfolio, understanding how your payment choices affect costs—and risks—is essential.

As always, given the speculative nature of cryptocurrencies, consulting a qualified financial advisor before making investment decisions is strongly recommended. Your strategy should align with your risk tolerance, timeline, and overall financial goals.

Remember: while opportunities in crypto remain significant, sustainable success comes from informed, deliberate action—not impulse buys funded by high-interest credit.

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