What is a brokerage account?
Looking to invest? A brokerage account is an investment account from which you can purchase investments such as stocks, bonds and mutual funds. You can add money to a brokerage account like a bank account and then buy investments. Brokerage accounts have no contribution limits or early withdrawal penalties. They offer flexibility but lack the tax benefits found in retirement accounts.
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How do brokerage accounts work?
You can open a brokerage account quickly online. Many brokerage firms allow you to open an account with no up-front deposit. However, you will need to fund the account before you buy investments. You can do that by moving money from your checking or savings account, or from another brokerage account.
You own the money and investments in your brokerage account, and you can sell investments at any time. The broker holds your account and acts as a middleman between you and the investments you want to buy.
There is no limit on the number of brokerage accounts you can have, or the amount of money you can put into a taxable brokerage account each year. There should be no fee to open a brokerage account.
How to choose a brokerage account provider
There are two options that meet the needs of most investors: online brokers and robo-advisors. Both offer retirement accounts and taxable brokerage accounts.
“You want to be careful with which company you open your brokerage accounts with,” says Wendy Moyers, a certified financial planner at Chevy Chase Trust in Bethesda, Maryland. “And you should be walking in with an awareness of what you’re going to be investing in. You want to do a little research.”
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