At RewardSmart, we're always looking for ways to help you maximize your rewards potential. While we primarily focus on credit card optimization, understanding different income streams can significantly impact your reward-earning power. One often-overlooked area is stock lending.

What is Stock Lending and Why Should You Care?

Stock lending is when you allow your brokerage to temporarily loan out your shares to other investors, typically institutions or short sellers. In return, you receive a portion of the fees generated from this lending activity. Think of it as renting out your assets to earn passive income.

Why should a credit card rewards enthusiast care? Simple: more income equals more spending power, which translates to more rewards! The extra cash generated from stock lending can be strategically allocated to your everyday spending, travel, or big-ticket purchases, all while racking up valuable points, miles, or cashback.

Choosing the Right Brokerage for Stock Lending

Not all brokerages offer stock lending programs, and the terms can vary significantly. When evaluating a brokerage for stock lending, consider these factors:

  • Eligibility: What are the minimum account balance or investment requirements?
  • Revenue Sharing: How much of the lending fee do you receive?
  • Securities Lent: Which of your holdings are eligible for lending?
  • Insurance/Protection: What safeguards are in place to protect your assets if the borrower defaults?

Research different brokerages and compare their stock lending programs to find the best fit for your investment strategy and risk tolerance. Some well-known brokerages offering this service include Fidelity, Charles Schwab, and Interactive Brokers. However, do your due diligence and compare their specific programs as terms can change.

Strategically Using Stock Lending Income for Rewards

Once you're earning income from stock lending, it's time to put it to work for your credit card rewards strategy. Here are a few ideas:

  • Meet Minimum Spending Requirements: Use your stock lending income to cover everyday expenses and easily meet the minimum spending requirements for new credit card welcome bonuses. Many cards require spending a certain amount within the first 3 months (e.g., spending $4,000 within 3 months to earn 60,000 points). The extra income can help you reach that target without overspending.
  • Unlock Bonus Categories: Maximize your rewards by strategically using the income to spend in bonus categories offered by your credit cards, such as dining, travel, or groceries. For example, if your card offers 4x points on dining, allocate a portion of your stock lending income to dining out and boost your points earnings.
  • Fund Travel Hacking: Dedicate a portion of your stock lending income to funding your travel hacking goals. Use the extra cash to pay for flights, hotels, or other travel expenses, and redeem your accumulated credit card rewards for even more travel experiences.

Important Considerations

Before diving into stock lending, it's crucial to understand the risks involved. While brokerages typically provide safeguards, there's always a chance of borrower default or market fluctuations impacting your investments. Consult with a financial advisor to determine if stock lending aligns with your investment goals and risk tolerance.

RewardSmart's Recommendation

Stock lending can be a valuable tool for generating passive income and boosting your credit card rewards strategy. By carefully selecting a brokerage with a favorable stock lending program and strategically allocating the income, you can unlock even greater rewards and accelerate your progress toward your financial goals. Just remember to thoroughly research the risks and consult with a financial advisor before getting started.