Key Takeaways
- A brokerage account is the account you use to buy and sell stocks, ETFs, and funds.
- Compare fees, account minimums, fund selection, and ease of use.
- Decide on the account type first: taxable brokerage, IRA, or both.
- Check that the broker is a FINRA member and that accounts are covered by SIPC.
To invest in stocks, ETFs, or mutual funds, you need a brokerage account. Opening one is easier than ever, but brokers differ in costs, tools, and investment choices. Here is what to look for so you pick one that fits how you plan to invest.
Step 1: Decide What Kind of Account You Need
Most beginners choose between:
- Taxable brokerage account: flexible, no contribution limits, money can be withdrawn anytime, but gains and dividends may be taxed each year.
- Individual retirement account (IRA): tax advantages for retirement savings, with annual contribution limits and rules on withdrawals.
Many brokers let you open both under one login. If you have a workplace 401(k), that account is held with your employer’s plan provider instead.
Step 2: Compare Costs
Many major brokers now charge $0 commissions for online stock and ETF trades. Still compare:
- Account maintenance or inactivity fees
- Fees to transfer your account out
- Mutual fund transaction fees
- Expense ratios of the broker’s own funds
- Fees for paper statements or broker-assisted trades
Step 3: Look at Investment Choices and Features
Make sure the broker offers the kinds of investments you want, such as low-cost index funds and ETFs. Features that help beginners include fractional shares, automatic recurring investments, automatic dividend reinvestment, and educational resources.
Step 4: Check Safety and Regulation
Look for a broker registered with the SEC and a member of FINRA. You can look it up with FINRA BrokerCheck. Most U.S. brokerages are also SIPC members, which protects customer securities and cash up to certain limits if the brokerage firm fails. SIPC does not protect against losses from market declines.
Step 5: Consider the Experience
A clear app and website, good customer service, and easy-to-read statements make it more likely you will stay consistent. Some people also consider robo-advisors, which build and manage a diversified portfolio for a small annual fee.
Example: How Small Fees Compare
Imagine you invest $200 a month into an ETF. At a broker charging $0 per trade, all $2,400 a year goes to work.
At a broker charging a $5 fee per trade, you would pay $60 a year, which is 2.5% of what you invested. Over time, that drag adds up, which is why commission-free trading matters most for people investing small amounts often.
Examples are hypothetical and for illustration only. Returns are not guaranteed, and real results will vary.
Frequently Asked Questions
How long does it take to open a brokerage account?
Online applications often take 10 to 20 minutes. Funding the account by bank transfer may take a few business days.
Can I have accounts at more than one broker?
Yes, though keeping things in one or two places is usually easier to manage.
What is a robo-advisor?
A service that builds and rebalances a portfolio for you based on your goals and risk tolerance, usually for an annual percentage fee.
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