Online brokerages are primarily meant for buying and selling stocks and other types of investments, but they can also be a good option to consider for your checking account.
Some online brokerages offer checking accounts that come with free checks, mobile banking, online bill pay or unlimited ATM access with fee reimbursem*nt.
What is a brokerage checking account?
A brokerage checking account is a checking account offered by a brokerage. Many brokerages offer these accounts and they generally sweep your funds into banks that are insured by the Federal Deposit Insurance Corp. (FDIC).
Brokerage checking accounts have features similar to checking accounts at a bank, but they might have additional benefits that a standard checking account may not offer, such as:
- Reimbursem*nt of ATM withdrawal fees
- No foreign transaction fees
- Free checks
Your checking account at the FDIC-member bank in town has a standard deposit insurance limit of $250,000 per depositor, per FDIC-insured bank, per ownership category. Options such as adding another depositor to an individual account can increase your FDIC insurance coverage.
However, some brokerage checking accounts make it even easier to get additional FDIC coverage — especially if you’re the only one listed on the checking account — by sweeping your uninvested cash balance into other FDIC-member banks. Make sure you understand where your money is being funneled to and how it’s insured.
Advantages and disadvantages of a brokerage checking account
Here are some of the pros and cons of brokerage checking accounts.
Pros
- Brokerages generally have no minimum balance requirements.
- They may reimburse fees for using different banks’ ATMs.
- Brokerage checking accounts may offer free checks.
- Some accounts may partner with multiple FDIC banks to provide more insurance coverage.
Cons
- Brokerages tend to offer lower annual percentage yields (APYs) on savings, money market and interest checking accounts than the best online banks.
- Brokerages typically don’t have cash-handling employees in brick-and-mortar locations.
- Brokerage accounts don’t offer all the services that a traditional bank offers.
- Brokerages might not offer additional products such as mortgages and other loans.
- Brokerages may not have weekend or evening hours.
How to choose a brokerage checking account
Free ATM access, ATM fee reimbursem*nt and no monthly fees should be at the top of any consumer’s list of checking account must-haves. Free checks and a debit card are also common conveniences. Mobile deposit is another feature that your brokerage checking account should have.
Your ability to buy and sell stocks directly from your brokerage checking account will vary by brokerage. For instance, if you open a Schwab Bank high-yield investor checking account, a brokerage account is automatically opened with it. The two are linked, but you’re not actually trading out of the checking account.
But with the Fidelity cash management account, you can trade and conduct bank transactions from this same account.
Having your checking under the same roof as your assets is convenient, says Greg McBride, CFA, Bankrate chief financial analyst. The sweep accounts let you quickly invest your money rather than transferring it.
But there are caveats. If having a small bankroll means your brokerage checking account isn’t free, shop around. Casting a wider net to cover credit union, online bank and community bank accounts makes more sense, McBride says.
Comparing brokerage checking accounts
Here’s a rundown of some of the best brokerage checking accounts offered:
| BROKERAGE | MONTHLY MAINTENANCE FEE | ATM FEES | DEBIT CARD | CHECKS |
|---|
| Fidelity (cash management account) | None | Reimbursed for any ATM charges in the U.S. | Visa debit card is available | Free standard checks |
| Schwab Bank (high-yield investor checking account) | None | Unlimited fee rebates at ATMs worldwide | Schwab Bank Visa Platinum debit card is available | Free standard checks |
| TD Ameritrade (cash management account) | None | Reimbursed for any ATM charges in the U.S. | Visa debit card is available | Free standard checks |
Is a brokerage checking account right for you?
A brokerage checking account can be a great way to save on fees. But sometimes it’s smarter to keep your checking account and brokerage account separate, says Timothy Kenney, certified financial planner at Seawise Financial in Cardiff, California.
“This is especially true for people that like to trade stocks,” Kenney says. “When you have three to six months in a savings account at the bank for an emergency fund, it can be easier to mentally compartmentalize that as an emergency fund and you can ignore it. If that three to six months savings is sitting in a brokerage account and you’ve had your eye on Tesla stock, it can be tempting to use it for something it wasn’t intended for.”
Those looking to use a brokerage checking account to earn a high yield on their savings might find a savings account or a money market account to be a better option. For longer-term savings, a CD could also earn you a higher yield.
“It doesn’t pay to let money pile up in a checking account,” McBride says. “There are better yields to be had by deploying your cash more efficiently in other savings accounts and investment products. The appeal of a checking account is convenience, and particularly if that can be had without any balance requirements or ongoing fees.”
— Bankrate’s Libby Wells contributed to an update of this story.
FAQs
Opening a brokerage account can be an easy way to invest in stocks, bonds and other securities, either on your own or with guidance from the brokerage. Brokerage accounts are more accessible investment accounts than other options, such as retirement funds, but they also have their downsides, including fees and taxes.
What are the pros and cons of a brokerage account? ›
Opening a brokerage account can be an easy way to invest in stocks, bonds and other securities, either on your own or with guidance from the brokerage. Brokerage accounts are more accessible investment accounts than other options, such as retirement funds, but they also have their downsides, including fees and taxes.
What are the pros and cons of a checking account? ›
The primary benefit of checking accounts is the ability to store money you intend on spending, either through debit card transactions, checks, or cash withdrawals. However, the downside is they typically don't pay interest.
What is a brokerage checking account? ›
A brokerage checking account combines the features of a brokerage account and a checking account. Like the best checking accounts, a brokerage checking account provides checks, a debit card and ATM access. Depending on the brokerage, you may also qualify for ATM fee reimbursem*nts or interest on your balance.
Is a brokerage account better than a bank account? ›
Brokerage accounts often carry higher risks and costs, but much higher earning potential. On the flip side, savings accounts bring certainty and immediate access to all of your funds at a moment's notice.
What are the cons of brokerage? ›
Brokerages typically don't have cash-handling employees in brick-and-mortar locations. Brokerage accounts don't offer all the services that a traditional bank offers. Brokerages might not offer additional products such as mortgages and other loans. Brokerages may not have weekend or evening hours.
Why should no one use brokerage accounts? ›
Investors in brokerage accounts that fail due to fraud can be forced to pay back to a SIPC-appointed trustee huge sums, indeed far more than what they contributed to their accounts.
What are three pros and three cons of online banking? ›
The Bottom Line
The pros include higher yields, lower fees, and high-tech features that help with account maintenance and budgeting. The cons include more difficult access to customer service, as well as online security concerns. Ultimately, you have to decide what's right for you.
What are the pros and cons of banking? ›
In conclusion, traditional banking offers a range of advantages such as personalized customer service, physical branches, and a sense of security and trust. However, it also has its drawbacks, including potential fees, limited accessibility, and lengthy processes.
What are the cons of interest checking account? ›
Cons of Interest Checking Accounts
- Rates aren't always competitive. Compared to savings accounts, interest checking accounts typically earn less interest. ...
- Interest might come with caps or requirements.
Cash and securities in a brokerage account are insured by the Securities Investor Protection Corporation (SIPC). The insurance provided by SIPC covers only the custodial function of a brokerage: It replaces or refunds a customer's cash and assets if a brokerage firm goes bankrupt.
What is a brokerage account for dummies? ›
A brokerage account is an investment account that allows you to buy and sell a variety of investments, such as stocks, bonds, mutual funds, and ETFs. Whether you're setting aside money for the future or saving up for a big purchase, you can use your funds whenever and however you want.
Can I transfer money from my brokerage account to my checking account? ›
Can you pull money out of a brokerage account? Yes, you can pull money out of a brokerage account with a bank account transfer, a wire transfer, or by requesting a check. You can only withdraw cash, so if you want to withdraw more than your cash balance, you'll need to sell investments first.
What are the downsides of a brokerage account? ›
brokerage account, the biggest disadvantage is that a brokerage account is not tax-advantaged. Since it's a taxable account, you'll have to pay taxes on earnings in your account, including capital gains and dividends. Capital gains taxes kick in when you sell investments at a profit.
Can you take money out of a brokerage account? ›
Withdrawing money from a brokerage account involves a straightforward process that allows account holders to access their funds for various purposes such as cash withdrawals or other financial transactions.
Are brokerage accounts a good idea? ›
For example, if you want to buy a house with cash or save up a very large down payment, a brokerage account might be a good option if you plan to save for about five years. But for savings goals that will take less than five years, you might want to use a regular savings account or a money market account.
How risky is a brokerage account? ›
Brokerage accounts are insured by SIPC up to $500,000 but the insurance doesn't cover the payback from your investments. It only covers missing assets if the broker goes down. If customer assets aren't missing, the SIPC insurance isn't needed.
Why would I want a brokerage account? ›
A brokerage account is an investment account that allows you to buy and sell a variety of investments, such as stocks, bonds, mutual funds, and ETFs. Whether you're setting aside money for the future or saving up for a big purchase, you can use your funds whenever and however you want.
How much money should I keep in a brokerage account? ›
Verhaalen often recommends clients maintain a cash reserve that's, at a minimum, the equivalent of six months of income.
Do you pay taxes on a brokerage account every year? ›
How Are Brokerage Accounts Taxed? When you earn money in a taxable brokerage account, you must pay taxes on that money in the year it's received, not when you withdraw it from the account. These earnings can come from realized capital gains, dividends or interest.
