The pros and cons of brokerage checking accounts
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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 reimbursement.
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:
- Reimbursement 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.
- 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.
- 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 reimbursement 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.