What Is a Brokerage Account and How Do I Open One?

What Is a Brokerage Account and How Do I Open One?

What is a brokerage account?

A brokerage account allows investors to buy and sell stocks, bonds and mutual funds, and perhaps to get into more advanced investments such as currency, futures and options contracts.

Some brokerage accounts are taxable, which means the money you earn from investments within the account can be subject to capital gains taxes. But if your goal is to invest for retirement, you could open an IRA or Roth IRA at your broker to gain special tax benefits.

Is a brokerage account right for you?

Yes, a brokerage account is best if …

  • You’re investing for something other than retirement, won’t need the money in the next five years and are interested in managing your own investments. Here are our top picks for best online brokers.
  • You want to save for retirement and you’re already getting all the free money available through your 401(k) match. In this case, look to a brokerage for a Roth or traditional IRA to get important tax benefits. Here are our picks for the best IRA providers.

Other accounts might be a better fit if …

  • You’d rather have someone else do the day-to-day work of managing your retirement funds or other investments. If this sounds appealing, consider a robo-advisor, which is a lower-cost alternative to a human investment manager. Here are our top picks for robo-advisors.
  • You are saving for a goal you want to accomplish in the next five years. Instead, steer clear of the stock market and consider an online savings account or other short-term investments.

How to choose an online broker

You’ll likely want to open an account with an online broker, which will allow you to trade investments easily via its website or trading platform. Before you open an account, figure out which online broker is best for you, based on a few key factors:

  • Commissions: Nearly all online brokers will charge a trade commission, typically $5 to $10 per trade. (One notable exception: Robinhood offers commission-free trades.) A broker’s commission will apply to trades of stocks, options and exchange-traded funds. You may also be charged a transaction fee for buying mutual funds, however, many brokers offer commission-free ETFs and no-transaction-fee mutual funds.
  • Account fees: These include annual fees, inactivity fees, and extra charges for trading platforms, research and data. These charges can be avoided completely in many cases by choosing the right broker.
  • How often you plan to trade: If you plan to trade frequently, you’ll want to find a broker with low commissions. If you don’t anticipate trading often, be sure the broker doesn’t charge inactivity fees.
  • Support: Brokers offer varying levels of educational resources and forms of customer support. Make sure the one you choose meets you where you are.
  • Minimums: A broker’s minimum deposit requirement can range from $0 to $2,500 or more.

If you’re getting started investing, here are a few brokers that do a good job on these factors and give you a solid foundation while your skills and strategy develop:

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