In this article:
A regular brokerage account is an investment account that gives you access to stock market investing. Once you fund it, you can buy stocks, bonds, mutual funds, exchange-traded funds (ETFs) and other securities. A brokerage checking account operates like an ordinary checking account, but you can also purchase investments with just a few clicks. They have other benefits, too, but a brokerage checking account isn't for everyone. Here's a look at the pros and cons so you can decide if it's right for you.
What Is a Brokerage Checking Account?
Brokerage firms give investors direct access to the stock market. Brokerage accounts don't offer the same tax advantages as retirement accounts like 401(k)s and individual retirement accounts (IRAs), but you can access your funds whenever you want. There are no early withdrawal penalties, contribution limits or required minimum distributions.
But brokerage accounts aren't meant for everyday transactions. They're designed to hold and grow a chunk of your wealth. Checking accounts, on the other hand, are used to cover regular expenses and day-to-day spending. A brokerage checking account is exactly what the name implies.
- It can hold cash like any other checking account.
- Account holders have a debit card, checks and ATM access.
- You can also purchase securities. Some brokerages let you do this directly from your checking account. Others set up a corresponding investment account that's linked to your checking.
How to Open a Brokerage Checking Account
While regular checking accounts are opened at traditional banks and credit unions, brokerage checking accounts are held with brokerage firms. Not all brokerages have brick-and-mortar locations, so you may need to open and manage your account online. You'll just need money to fund your new checking account. This is usually done by transferring funds from an existing account. Many brokerage firms don't have minimum balance requirements, which gives them a leg up over traditional checking accounts.
Are Brokerage Checking Accounts Insured?
Traditional checking accounts are insured by the Federal Deposit Insurance Corporation (FDIC). Brokerage checking accounts are no different because funds are typically funneled into banks that offer FDIC insurance, which covers up to $250,000 per depositor, per insured account. You may be insured for more if your cash is held with multiple banks.
Regular brokerage accounts are different. These funds are insured by the Securities Investor Protection Corporation (SIPC). If the brokerage firm becomes insolvent or there are instances of unauthorized trading, you can file a claim to get reimbursed. SIPC insurance covers up to $500,000, half of which can go toward missing cash.
Pros and Cons of Brokerage Checking Accounts
Brokerage checking accounts may be good options for some investors, but they're not for everyone. Here are some pros and cons to consider.
- Low (or no) account maintenance fees
- Some brokerage firms provide free checks
- Most don't require a minimum account balance
They can also provide a built-in opportunity to grow your wealth. Active investors who make frequent trades won't have to transfer funds from an outside account first. Instead, they can move money from a linked brokerage checking account—or buy securities directly from their brokerage checking account if their firm allows. Either option expedites the process and makes it faster and easier to invest.
- If you're hoping to maximize your savings, you might earn a better interest rate with a certificate of deposit (CD), money market account or high-yield savings account.
- Blending your investment and checking accounts can lead to overspending if you aren't careful, especially if you're using it to hold any portion of your savings.
- Investing is inherently risky, which means losses are always possible.
How Do Brokerage Checking Accounts Compare to Traditional Options?
There are lots of different ways to manage your money. Brokerage checking accounts and traditional checking accounts are both set up for day-to-day transactions. Neither are designed to hold your emergency fund. The following types of accounts are better suited for saving because they tend to earn higher annual percentage yields (APYs).
- CDs: You give up access to your investment for a certain amount of time (called the maturity period). When it ends, you'll get your investment back, plus interest. Longer maturity periods typically offer higher rates.
- High-yield savings accounts: These are ideal for parking your emergency fund or long-term savings. They are interest-earning accounts that are available through banks, credit unions and online financial institutions.
- Money market accounts: These are a cross between a savings account and a checking account. You'll earn interest and can usually write checks, make ATM withdrawals and use a debit card. However, you may be hit with fees if you don't maintain a minimum account balance.
Some brokerage firms also offer a savings component. TD Ameritrade and Fidelity, for example, offer all-in-one accounts that combine features of a checking account, savings account and investment account.
The Bottom Line
A brokerage checking account can be a great option if you're hoping to consolidate your accounts and have easier access to the stock market. It's meant to remove friction and streamline the investing process. No matter how you choose to invest, it's always wise to have a strong financial foundation first. That includes a solid emergency fund and healthy credit score. Experian offers lots of resources to help you get there, like free credit monitoring.