Brokerage Checking Account Pros and Cons

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Smart investors make their money work for them — not the other way around. 

A great way to do this is by diversifying your income by buying and selling investment securities. 

A brokerage bank account, which combines aspects of a traditional checking or savings account with full-service, market-trading capabilities, can help you do that. With a few mouse clicks, those who have a brokerage checking account can move cash to their trading accounts — and immediately purchase individual stock shares, bonds, exchange-traded funds (ETFs), and mutual funds

But opening a brokerage bank account isn’t a requirement to invest, and it’s not right for many types of investors. Although there are a lot of advantages in having access to the open market, everyone should stop to consider their current financial picture and wealth-building plans before jumping in. 

What Is a Brokerage Bank Account?

While traditional banks provide plenty of options for managing your money, they don’t typically offer direct access to securities on the stock markets. Instead, investing when you have a traditional bank account means setting up transfers between your banking institution and the brokerage where you buy stocks. 

If you’re interested in purchasing stocks, ETFs, or mutual funds regularly, you could consider a brokerage bank account to make the process more seamless. Directly tied to an investment portfolio account, brokerage banks offer the traditional services of a bank — in addition to access to the stock market. 

“You can still perform any function you could with a traditional bank account,” says Dan Stein, vice president and branch manager of the Bethesda, Maryland Charles Schwab office. “You have bill pay, online payment features, debit cards, and checks. But that component of being able to invest in securities in the same account not only simplifies it, but it really is the area where you can find growth through investments.” 

Typically targeted toward tech-savvy customers, brokerage bank accounts are often opened online, without the need to step foot into a physical location. All you need to open a brokerage checking or savings plan is to provide information to confirm your identity and link an existing checking account to fund your new brokerage account. 

The Advantages and Disadvantages of Brokerage Checking Account

As with any bank account, it’s important to consider all the key details before opening one and moving your money in. The pros and cons of a brokerage checking account are no different —  while it can offer a lot of flexibility, it also may not offer all the services of a traditional bank.

Easily move money from within your account to start buying investment securitiesInvestment returns aren’t guaranteed
Access to a large network of no-fee ATMsAny invested funds may lose value, depending on investments and market conditions
Online research tool access, like computer trading software and fund researchFinancial advisors may charge fees for planning services
Reduced-fee structure for banking services, like account minimums and overdraftsDo not usually offer lending products, like car loans or mortgages
Limited in-office services — no cash withdrawals or cashier’s checks 

Is a Brokerage Checking Account Right For Me?

Although brokerage accounts offer a lot of benefits, they also come with inherent risks. So before switching to a brokerage account, be sure to review your overall financial position — and consider how buying or selling securities could affect your wealth-building strategy. 

“If you don’t think you need a brokerage account, talk to a financial consultant about a financial plan,” says Stein. “Brokerage accounts can hold fixed income, bonds, or something conservative that can actually provide positive growth beyond just cash.” 

Pro Tip

Open a brokerage bank account if you have extra money to invest, and want to see your entire wealth-building picture in one place. But if you’re still building an emergency fund, or need more banking services like home loans, car loans, or credit cards, a brokerage bank might not be for you.

While many would benefit from having all of their long-term assets in one place, there are some who may not be able to take advantage of a brokerage checking account. Because stocks can lose value without warning, those who are still building an emergency fund may be tempted to use a brokerage account like a savings account. While there are gains to be found, investing in a losing stock can hurt how much you have available in the event of a crisis. 

“A brokerage checking account isn’t for someone who wants to have a shorter-term time horizon,” says Justin Shure, financial advisor and founder of Endeavor Strategic Wealth in Miami, Florida. “They may not have the discretionary assets to invest, and they need to keep those assets safe. Maybe later on, as they accumulate more assets, it might make more sense to have a brokerage-type relationship.” 

For those who have extra income and a plan to grow their money, a brokerage bank account can be a strong move toward building long-term wealth. Through understanding the benefits and knowing all the risks, you can decide if a brokerage bank account is right for you, and how much you can afford to place in the ever-changing stock markets. 

How to Choose a Brokerage Bank Account

Before investing your money in the stock market, it’s important to compare the brokerage accounts that are available. No two accounts are the same — which is why it’s critical to read the fine print and understand what you’re getting. 

  1. Make sure the money in your checking account is insured. First, make sure both the bank and brokerage sides of a brokerage account carry insurance on your money. Deposits in your brokerage checking and savings accounts must be insured by the Federal Deposit Insurance Corporation (FDIC). In the event the bank goes insolvent, or you run into a dispute over balances and withdrawals, FDIC insurance protects your deposits up to $250,000. 
  1. And make sure the funds in your brokerage accounts are insured, too. Your brokerage accounts will be insured by the Securities Investor Protection Corporation (SIPC) — but only if it’s an SIPC member. So this is something to confirm when shopping around for a brokerage account. Under the Securities Investors Protection Act of 1970, most brokers must carry SIPC insurance on funds in brokerage accounts. In the event your broker goes insolvent, the SIPC may cover repayment of the account balance up to $500,000.
  2. Watch out for commission fees. Next, be sure to look carefully at all the benefits offered by the brokerage account. Experts say most brokerage firms offering bank accounts will offer trades with no commission, making it easier to buy and sell securities. If your brokerage still requires a commission to put in an order, you might want to look elsewhere. 
  1. Do your homework on the company. Beyond the standard options, including no-fee ATM networks or free checkbooks, it’s a good idea to do research on the company’s ratings and customer service networks. You can read public reviews and about customer issues on both the Better Business Bureau and Consumer Financial Protection Bureau websites.
  2. Understand your points of contact. Although brokerage firms have offices, you won’t find traditional banks inside. If you have a question about your account, be sure to understand who you can talk to: the local branch manager or the bank call center. Also, be sure that they offer after-hours support through several channels, including secure messaging.