Brokerage firms want to be your banker, too.
While online brokerages are primarily meant for buying and selling stocks and other investments, they can also be an option to consider for your checking account.
Some online brokerages offer free checking accounts that come with free checks, mobile banking, online bill pay or unlimited ATM access with fee reimbursement.
How can they do this? A brokerage firm may be related to a bank, like how Charles Schwab & Co. Inc. and Charles Schwab Bank are separate but affiliated companies. These brokerages may be able to offer insurance up to $250,000 through the Federal Deposit Insurance Corp. (FDIC) just like FDIC banks, along with checking. Or, some can offer additional FDIC insurance by sweeping your uninvested cash balance to program banks. At minimum, Fidelity has five banks available to accept sweeps from its cash management account. Make sure you understand where your money is being swept and how it’s insured.
Brokerages and their banking partners like the stable, long-term deposits that tend to come with a brokerage checking account, says Andrew Frisbie, executive vice president at Novantas.
“When brokerages are able to add checking to the mix, they’re basically buying themselves some greater stability in their deposit profile, compared to just having the more-volatile cash associated with investment portfolios,” Frisbie says.
Your ability to buy and sell stocks through directly from your brokerage checking account is going to 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 a handy convenience, says Greg McBride, CFA, Bankrate chief financial analyst. The sweep accounts let you quickly invest your money rather than transferring it.
“I think it’s the convenience that is the initial draw, and the unlimited ATM or ATM fee reimbursement and free checking account just seals the deal,” McBride says.
But there are caveats. If having a small bankroll means your brokerage checking account isn’t free, look elsewhere. Casting a wider net to cover credit union, online bank and community bank accounts makes more sense, he says.
Choosing a brokerage checking account
Generally, consumers use an actual brick-and-mortar bank somewhere in their financial life. But there’s a small segment of customers that use a brokerage as their primary financial institution, Frisbie says.
“The checking features at that brokerage are what they use to conduct almost all their daily transactions,” Frisbie says. “For many others, though, they have that brokerage account and they might put some monthly transactions through it, like, say, paying a mortgage or other monthly fixed expenditures. But they’re still using a brick-and-mortar bank, whether it’s a local bank or a big national bank, for a lot of that kind of day-to-day cashflow spending.”
Free ATM access should be at the top of any consumer’s list of must-haves, McBride says. Generally, ATM fee reimbursement and no monthly fees are features you should look for. Free checks and a debit card are also common conveniences. Mobile deposit is another feature that your brokerage checking account should have.
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||None. All ATM fees are reimbursed 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||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|
A bank account at your brokerage isn’t always ideal
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 Tim Kenney, certified financial planner at TK Pacific Wealth in Del Mar, 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.”
If you’re looking to use a brokerage checking account to earn a high yield on your savings, a savings account or a money market account may 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.”
Finding the right brokerage checking account
Standard perks of a brokerage account include:
- No monthly fees.
- ATM fee reimbursement.
- Free standard checks.
- Debit card.
If you’re going to hold money in the account rather than invest it in stocks or other investments, you’ll also want to know the account’s APY. You don’t want to let money pile up in a low-yielding account, McBride says.
“There is something to be said for the convenience of being able to invest your excess cash at a moment’s notice,” he says. “But if you’ve got all of your accounts under that one roof, you want to make sure idle cash is earning a competitive yield in the meantime.”
Another key thing to understand is how the funds are insured and where they go if they’re swept into a different account.
Find the right checking account for you
Whether it’s a brokerage checking account, a checking account at a brick-and-mortar bank or a checking account with an online bank, make sure you’re avoiding fees and getting the perks you deserve. These may include ATM fee reimbursement, free checks and an account that has a low or no minimum balance required.
“You want a free checking account,” McBride says. “Regardless of where you put it, you want an account that has no fees or balance requirements regardless of transaction activity. And you can get that at a bank, you can get it at a credit union, you could get it at a brokerage firm. So don’t feel like you have to settle just for the sake of convenience.”
Here are some of the pros and cons of brokerage checking accounts.
- Brokerages generally have no minimum balance requirements.
- May reimburse foreign ATM fees conducted at another bank.
- May offer free checks.
- Some accounts may partner with multiple program banks to offer more FDIC insurance than a single bank.
- Can earn a higher annual percentage yield (APY) with a savings account, money market account or interest checking account elsewhere.
- 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 lending options.
- Brokerages may not have any weekend or evening hours.