Historically, gold was used as a means of payment. Merchants could count it, divide it into portions and then transport it from one place to another, yet it won’t lose value. The metal does not corrode and maintains its luster over time.
Due to its weight, it is difficult for present-day investors, traders, and individuals to move about with gold jiggling in their pockets. As a result, some financial institutions designed gold backed debit and credit cards to make it easy for people to convert their precious metals into fiat currency.
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What Are Gold Credit and Debit Cards and How Do They Work?
Gold credit and debit cards are similar to the regular cards we already know and use. But this time, the content of the account is gold assets. With a gold credit card, you can borrow money using your assets as collateral.
People who take loans against their gold assets already have more than enough stashed up in a secure vault or depository. They believe the price of gold will increase in the future so they can cover up for any loss. In some cases, the account owner may find it difficult to liquidate the said asset. So, the next reasonable thing to do is to collect a loan against it.
A gold debit card, on the other hand, is used for fund withdrawals. The process involved in using this type of card is different from the credit card. When you purchase items or pay for services with the card, the bank will charge you its equivalent in gold.
For instance, you purchased an item worth $1200 with your card. The bank looks at the current spot price for gold and sees that the amount is equivalent to an ounce of gold bar. The bank will contact your depository, storage facility, or the institution that issued the card, requesting a debit of one ounce of gold bar. You can watch this video to get a visual understanding of how the card works.
Gold backed cards are intuitive, easy to use, and are issued by certain banks or financial service providers. But you must ensure that your precious metals are kept in a storage account. To get started, the company may request a deposit of $100 to $500.
Gold bullion is not easy to transport because of its weight and the cost of insurance coverage. Hence, some banks or gold backed card issuers request account owners to buy the metal from their stock. After depositing funds, the company will convert them to the equivalent physical precious metals and then store them on your behalf. Next, the company will issue you a debit or credit card for the storage account.
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Final Thoughts on Gold Backed Cards
Although linking a card to your assets solves the problem of liquidity, do you think you need one? For new investors, opening a storage account may be a good way to start since you only need to deposit just a few hundred dollars. On the contrary, experienced investors or high-risk takers who already possess a significant number of precious metals may find this type of account uninteresting.
To balance the equation, some companies allow investors to come on board with their own precious metals. However, the procedures involved may be complicated. If you already own gold in an individual retirement account, for instance, you may be penalized for withdrawing assets before retirement. You can visit https://money.usnews.com/ to find out how to withdraw from an IRA without a penalty.
Furthermore, the issue of whether to get a gold backed card or not depends on what you want to achieve with it. Some investors do not plan to do anything with their precious metals until a certain number of years. So, for such people, getting the card may not be necessary unless they intend to take a loan to buy a house, car, or other projects and prefer to use their precious metals as collateral.
In summary, gold backed cards have various advantages. They come in handy when you want to quickly liquefy your assets without going through the hassle of searching for buyers or selling below the spot price. They are good for young investors who may not have enough cash to invest. However, your investment plan determines whether you need to get a gold backed card or not.
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