Trump Accounts are tax-deferred investment accounts for children designed to jump-start financial security, according to members of the Trump administration at a Jan. 28 summit. Any child born between 2025 and 2028 can be gifted $1,000 in seed money from the federal government.
Several corporations, including financial companies like Bank of America, JPMorgan Chase and Charles Schwab, have announced matching contributions for their employees. But Visa went a step further by sharing an announcement that could impact its millions of cardholders.
[Read: Rewards Credit Cards]
Credit Card Rewards as Investment Contributions
Visa announced a new credit card rewards redemption option may be on the horizon that can help parents fund their children’s Trump Accounts. “Visa will be working with our U.S. financial institution partners to enable a new capability that will offer cardholders the option to direct credit card rewards into Trump Accounts. It’s a simple way for families to turn rewards earned on everyday purchases into savings for their children’s futures.”
Is Investing Credit Card Rewards a Good Idea?
There are already co-branded credit cards available that allow you to use rewards to fuel investment goals. One is the Fidelity Rewards Visa Signature Credit Card, says Dave Grossman, credit card expert and founder of YourBestCreditCards.com, since its 2% earnings on purchases go directly into a Fidelity brokerage account.
As for Visa’s announcement, Grossman sees it as a positive for credit card users. “Long-term saving, especially for our children, is essential financial planning,” he says. “Any new mechanism that also encourages long-term investing via automation is a win in my book.”
Based on an account opening at birth with the government’s $1,000 opening deposit and using historical S&P 500 averages, it’s estimated that a Trump Account could grow to reach $6,000 by the time the child turns 18 without any additional contribution. However, if parents are able to contribute $250 per year, that can boost the account to around $19,000 thanks to compound interest.
By using a participating credit card that earns 2% cash back, you could achieve that $250 annual contribution just by spending a little over $1,000 per month with the card. Then, if you’re fortunate enough to get an employer match or able to make additional deposits, you can help the account grow even more.
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Visa Announces Future Option to Use Credit Card Rewards to Fund Trump Accounts originally appeared on usnews.com