The pros and cons of brokerage checking accounts
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 FDIC program banks.
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:
- ATM withdrawal reimbursement.
- No foreign transaction fees.
- Free checks.
Your checking account at the FDIC bank in town has a standard deposit insurance limit of $250,000 per depositor, FDIC-insured bank, per ownership category. Additional titling options, such as adding another person 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 on the checking account — by sweeping your uninvested cash balance to program banks. Make sure you understand where your money is being swept 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 foreign ATM fees conducted at another bank.
- These accounts may offer free checks.
- Some accounts may partner with multiple program banks to offer more FDIC insurance than a single bank.
- Savings accounts, money market accounts and even interest checking accounts at online banks tend to offer a higher annual percentage yield (APY).
- 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 weekend or evening hours.
Comparing brokerage checking accounts: Examples
Free ATM access, ATM fee reimbursement and no monthly fees should be at the top of any consumer’s list of 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 also 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.
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.
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 Tim 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.”