When you are ready to start investing your money, choosing the right brokerage account is the key to reaching your financial goals and building the right foundation.
Fortunately, you have plenty of options to consider when you are looking for your online broker.
This post was written in partnership with Your Money Geek.
This is great news because you can be more selective and ensure you are using a broker that fits your investment needs. However, there is also a downside.
Since there are so many options, it can be daunting as a beginner or investing noob to know where to start and which platform is best for you.
But don’t worry! Below I’ll cover the best brokerage accounts to consider, which will hopefully help you make a more informed choice!
What is a Brokerage Account?
A brokerage account is an investment account that will allow you to buy and sell various investments like stocks, bonds, mutual funds, index funds, or ETFs. It’s also an account that can hold cash, so you have money ready to go to work for you when you are ready to invest.
Types of Brokerage Accounts
When you look at opening a traditional brokerage account, you will typically have two choices when you pick your broker: an individual brokerage account or a joint brokerage account.
Individual brokerage account: This is the standard account that most people use, where you open a brokerage account in one name and are the only account owner attached to that account.
Joint brokerage account: If you open a joint brokerage account, this means you will be opening a shared account with two or more individuals. Typically, you’d open a joint brokerage account with your spouse, but one can be opened with your child, other family members, and even business partners. There is more info as well as pros and cons with this account type – learn more here.
What Can You Do With a Brokerage Account?
When you open a brokerage account, you have more financial options for your money than, say, a savings account at your bank.
You can buy and sell stocks, mutual funds, ETFs, and other securities.
Get access to investing tools, research, and experts to help you.
It helps you reach bigger financial goals than letting your money sit in a bank.
When Should You Open a Brokerage Account?
You should open a brokerage account when you have savings goals five years or more away but might not be for retirement. This account can be a great companion to your emergency fund, which can elevate your overall financial health.
And since a traditional brokerage account is a taxable account, make sure you first have your emergency fund built and max out your retirement accounts first. That way, you are financially prepared and are ensuring you are investing for your future retirement.
Opening a traditional brokerage account can also be a great way to put more of your money to work, especially as you earn more or have leftover money to invest. It’s how you can ensure to become wealthy and live a more comfortable life.
So Which Brokerage Account is Best?
The challenge with choosing the right brokerage account is that many offer similar features, services, and price points for trades and accounts.
In the last few years, the financial industry had some disruptors shake up the market, forcing some of the original players to match. This is great news for you, the investor. But like I said earlier, this can make it difficult to choose the right broker or confuse you.
Below is a list of the best brokerage accounts:
- Charles Schwab
Charles Schwab is one of the best online brokers out there. They offer a wide range of low-cost index funds and ETFs, and this year dropped their trade commission fee to better compete with some new fintech companies (like Robinhood).
Their platform is relatively easy to use. But like with anything, it takes some time to get up to speed. Once you’re familiar, though, it’s easy to set up a sound index investing strategy with Schwab.
- 0.02% lowest fee for an ETF or index fund
- $0 commission per trade
- SWTSX – Schwab Total Stock Market Index Fund (0.03% expense ratio)
- SWISX – Schwab International Index Fund (0.06% expense ratio)
- SWAGX – Schwab U.S. Aggregate Bond Index Fund (0.04% expense ratio)
Vanguard is a personal favorite of mine and is also a pioneer in index fund investing. Also founded in the 1970s, it was developed by John C. Bogle, who is also touted as the father of index funds.
Vanguard is the original and arguably the best place to buy index funds. It was founded by John Bogle, the man who created index funds himself.
While they don’t have the absolute lowest fees or sexiest online platform, they have a long history of being a trusted broker for index investors. Plus, their costs are still pretty dang low.
- 0.04% lowest fee for an ETF or index fund
- $0 commission per trade (with Vanguard funds)
- VTSAX – Vanguard Total Stock Market Index Fund (0.04% expense ratio)
- VTIAX – Vanguard Total International Stock Index Fund (0.11% expense ratio)
- VBTLX – Vanguard Total Bond Market Fund (0.05% expense ratio)
Fidelity has slightly fewer index fund options compared to Vanguard and Schwab, it seems, but that’s not always a huge deal. Especially if you are building a simple three-fund portfolio.
They do offer funds with 0% expense ratios. That’s right, 0%!
That is something that neither Schwab nor Vanguard offers at this point. It could be something that changes in the future, with prices becoming more focused on these online brokers.
- 0.00% lowest fee for an ETF or index fund
- $0 commission per trade (with Fidelity funds)
- FNILX – Fidelity ZERO Large Cap Index Fund (0.00% expense ratio)
- FZROX – Fidelity ZERO Total Market Index Fund (0.00% expense ratio)
- FZILX – Fidelity ZERO International Index Fund (0.00% expense ratio)
One of the newer brokerages on the block is Webull, which has quickly started establishing itself as a top contender in the investing space. The company was founded in 2017, so it has a short track record and offers some great things for investors.
Webull was built as a mobile-first platform, and they offer commission-free trading of stocks, ETFs, and options. You can open individual brokerage accounts or an IRA, plus you can even trade cryptos. The one downside is that they do not offer index funds at this time, but they do have a great selection of ETFs.
Also, they have a robust trading research platform to help you make better investment choices.
Robinhood gets a slight edge over Schwab because of the simple and intuitive platform. That, combined with free trading, is hard to beat!
Though, it does offer a bare-bones platform. Which helps keep it easy to navigate, but if you’re looking to do robust stock research, you’ll likely need to do that outside of the Robinhood app.
Important to note here as well is that simple is not always better when it comes to investing. Robinhood makes stock trading very easy, almost like a game. Which it certainly is not! All trades should be made carefully and only after doing diligent research.
- $0 commission per trade
The Best Automated Options (Robo-Advisors) for Beginners?
If you are just getting started with investing or might be looking for more automated options, there are some other brokerage accounts you might want to consider as a beginner.
Below is a list of the best brokerage accounts for beginners:
- M1 Finance
- Ally Invest
Many people would like to invest but aren’t interested in always learning or tinkering with their portfolios. One option is to choose M1 Finance, which makes investing easy with their automated account management and portfolio options.
You can choose over 80 custom profiles to invest in, own fraction shares of stocks or ETFs, and create investing and rebalances schedules, so you don’t have to log in constantly. There are a few account options, too, like an individual brokerage account, joint brokerage account, an IRA, or a Trust.
With M1 Finance, you aren’t charged commissions or markups on any trades, no platform usage fee, and no fees to deposit or withdraw from your bank. However, there are some miscellaneous fees to pay attention to for certain actions.
Robo-advisors, in general, win out on ease of use, plain and simple. Especially with Betterment, which offers a clean and easy to navigate interface. Plus, once you answer their upfront questions, they manage your investments for you. It doesn’t get much easier than that!
Though, Betterment does come with a cost – a 0.25% management fee. That fee adds a high cost to your investments, so you need to be sure that the simplicity that Betterment brings to your life is worth the extra cost!
- 0.25% management fee
- 0.03%-0.25% range of fees for ETFs
- SCHB – Dow Jones U.S. Broad Stock Market (0.03% expense ratio)
- VOE – CRSP US Mid Cap Value (0.07% expense ratio)
- SCHF – FTSE Developed ex-US (0.06% expense ratio)
Stash Invest, or just Stash, has quickly risen the ranks as one of the best investing platforms for beginners and beyond. You can invest in fractional shares of funds and stocks with as little as $1. The company will also help you balance and provide portfolio recommendations tailored to your needs.
Stash offers three account plans for investors that will cost $1 to $9 per month (pending your selection). Each plan offers features, even beyond your investments, so you have more control of your money.
You can also invest in a brokerage account, traditional IRA, or Roth IRA retirement account.
In the personal finance industry, many love and utilize Ally Bank for their online banking needs. But you might not have realized they also offer investment options and services too.
Ally Invest offers Self-Directed Trading and Managed Portfolios, which have some differences between them.
Self-Directed Trading: stocks, bonds, mutual funds, and ETFs, commission-free stocks, commission-free ETFs, commission-free options trading.
Managed Portfolios: Robo-advisor that you can start with just $100. No advisory fees, annual charges, or rebalancing fees, and 30% of your portfolio is set aside as an interest-earning cash buffer. Monitoring and automatic rebalancing of portfolio, ETFs, and various portfolio choices to pick from.
Blooom is a unique robo-advisor in that they mainly focus on 401(k)s. They don’t offer a variety of funds themselves, but rather they connect to your existing 401(k) provider to offer optimization tips and potentially even manage your account.
Blooom offers three levels of service:
- A Free 401(k) Health Check-Up: Blooom can hook up to your 401(k) to review your account and provide recommendations on how to optimize your investments
- Paid Ongoing 401(k) Management: Blooom offers ongoing 401(k) management, so you can take a more hands-off approach and let them take the wheel
- DIY 401(k) Management: Blooom will create a personalized portfolio that you would implement in your 401(k) account
- Free 401(k) analysis
- $10/month flat fee for ongoing 401(k) management, with different membership levels and prices
What The Blooom Free Analysis Provides:
- Diversification recommendation
- Fee check-up – are you paying too much in hidden investment fees?
- Obvious watch-outs, like being invested in company stock
- Retirement tracking snapshot
Are Brokerage Accounts Worth It?
Pending your current personal finances, opening a brokerage account can be a great option for you. These allow you to save money and invest in helping you reach a future goal (like saving six-figures).
Here is what makes brokerage accounts worth opening:
- No withdrawal limitations or penalties like 401ks or IRAs.
- You can take money out anytime without paying fees.
- You can invest as much as you want, with no account restrictions.
- There can be more flexibility when you pay taxes, pending when you sell
- Can earn a tax break from any loss on losing investments.
Remember, the downside is that you will typically have to claim any capital gains as taxable income with a brokerage account. However, funds and ETFs are more tax-efficient that might be interesting for you to invest.
Is My Money Safe in a Brokerage Account?
When you invest in a brokerage account, your money is insured and protected by SIPC (Securities Investor Protection Corporation). This protects the customers up to $500,000 and up to $250,000 in cash. For any legit broker, this means you have protections in place to receive refunds if your cash and assets of the brokerage go bankrupt.
Though remember, investing involves risk, and your investment could go down in value.
How do I Choose A Brokerage Account?
Since there are so many options today, it might be hard to know which brokerage account to choose. While many of the above brokerage accounts offer very identical features, there will still be some minor differences that might matter to you.
Here are some important tips to think about before opening any brokerage account.
Understand the Fees
While fees have gotten lower over the years thanks to the Fintech disruption, many brokerage accounts may offer various fee amounts. Naturally, you want the lowest fees possible. But don’t get too caught up in chasing minor fraction percent savings, especially if one broker has everything you need.
Look for things like fund fees, account fees, if there are fees to buy or trade stocks, etc. Compare those numbers to all the brokers you are considering.
What Types of Investments Do They Offer?
As you consider opening and investing in a brokerage account, what kind of investments you need will matter. Pending the company you choose, you’ll want to ensure they have the type of investments you want.
Do they offer ETFs, index funds, bonds, stocks? Are their choices limited and selective? Do they offer custom portfolios, or do you need to pick your investments only?
Make Sure the Platform Lets You Do Everything You Need
The goal is to have a platform that allows you to manage investments all in one place. While you might be interested in just a traditional brokerage account, it’s nice to have other options like retirement accounts, 529 plans for future education costs, etc.
Brokerage Accounts FAQ
Can you use a brokerage account as a checking account?
A brokerage account does have similarities to a checking or savings account in that you can make as many contributions or withdrawals as needed at any time. However, a brokerage account gives you way more investment options and is not FDIC insured like a traditional bank.
Do you pay taxes on a brokerage account?
When you open a traditional brokerage account that is not a retirement account, you have opened a taxable account. This means if you make money when your investments go up or your investments pay dividends or interest, that income is going to be taxed.
Is there a penalty for withdrawing from a brokerage account?
With a traditional brokerage account, there are no penalty fees for withdrawing money from that account. However, any money you withdraw will be taxable. So any capital gains from the sale of your assets are subject to taxes, which is something to keep in mind.
Todd Kunsman from Invested Wallet
Founder of Invested Wallet and featured in Time, Business Insider, & HuffPost. Self-educated on personal finance and investing. He’s passionate about financial freedom, investing, side hustles, and helping others realize they too can transform their finances.