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Investors are consolidating their financial accounts with a single institution more and more these days, as the line between banks and brokerages continues to blur.
Traditional mega-banks such as Bank of America and Wells Fargo now offer investors quality brokerage services, while traditional brokers such as Charles Schwab, E-Trade and Interactive Brokers provide customers a range of banking services. Even many robo-advisors such as Wealthfront and Betterment combine the ability to invest with traditional banking functions.
Yet as institutions offer more features and services, each has strengths and weaknesses. One broker may offer low trading commissions but average customer service, while another offers a great trading platform but no discounts for buying and selling mutual funds. And with major online brokers slashing their commissions on stocks and ETFs to zero, consumers have one less point of comparison, even while benefiting from the low costs.
If you want a better overall product and don’t want to leave money on the table, then it may make sense for you to have multiple brokerage accounts. You’ll be in a position to get the best of several brokers and can decide which broker makes sense for any given action you want to take.
Here are five reasons why having multiple brokerage accounts can really pay off.
1. Lower fees
Brokers compete on cost — a lot. When Interactive Brokers and Charles Schwab debuted no-cost stock and ETF trading in 2019, the rest of the commissioned brokers followed. With that major cost out of the way, individual investors can focus on comparing brokers on other fees.
For example, the best brokers for mutual funds offer thousands of them with no transaction fee, while many others offer reduced costs. Schwab and Vanguard are leaders here, while Fidelity Investments offers its own totally free funds – no transaction fees and a zero expense ratio, too.
You’ll also want to consider other fees, including the routine fees that many brokers still charge. For example, some brokers still charge an IRA close-out fee. While it may be relatively small, there’s little reason it should go into their pocket if it could just as easily go into yours.
When it comes to these nickel-and-dime fees, two of the best brokers – who also don’t sacrifice customer service – are Fidelity and Charles Schwab. You’ll be able to quickly reach customer service, and you won’t be relegated to searching for an answer on a website.
2. Better research and education
Quite a few brokers compete on providing great research and educational resources for their customers. The best brokers offer detailed fundamental research on a huge number of stocks.
Some brokers such as Merrill Edge (owned by Bank of America) offer their own in-house research reports, which go into great detail on a stock, offering earnings projections and more. Others, including Charles Schwab and Fidelity, offer a variety of reports from high-quality third-party providers. These brokers also provide market commentary, so you get a sense of how the market is performing and why.
Both Schwab and Fidelity also offer excellent customer service and are regularly top performers in Bankrate’s reviews of best brokers.
These two are also well-known for the educational materials on their online offerings. They provide a variety of articles and modules to teach you how to invest and help understand the variety of tools they offer – such as stock and fund screeners.
Another standout for education is Merrill Edge. The broker provides articles and videos that explain topics such as retirement, college planning, personal finance and investing.
3. Lower margin costs
Another feature that more advanced investors might appreciate is lower margin costs.
To recap, margin is a type of loan that you can take against the equity in your brokerage account. Effectively, the broker allows you to overdraw your account and then charges you interest on the overdraft. The interest expense is simply rolled into your overdraft balance. Then whenever you add cash to your account or sell a stock, the margin balance declines.
There’s really a standout player in the industry here: Interactive Brokers has long been recognized as the leader in providing low margin rates, offering variable rates that depend on the federal funds rate. Its highest margin rate is about 1.5 percent above the benchmark rate from the Federal Reserve. Many other brokers charge much more for margin lending.
As the Fed raises or lowers interest rates, Interactive Brokers’ margin costs track these changes. And if you borrow more from the broker, the rate declines.
While margin loans are generally for more advanced investors, margin can help juice your investment returns, especially if used prudently and in moderation. Margin loans can also be used as an easily accessible emergency loan, if you need quick access to cash. However, any form of borrowing increases your risk.
4. Interest on cash balances
As interest rates have gone up recently, some brokerages and robo-advisors are now offering more attractive rates on cash balances, putting them among the best cash management accounts.
If you’re looking for a top brokerage here, Interactive Brokers is a great option. The brokerage’s rates for cash balance rise and fall as the Federal Reserve adjusts rates. It’s the top pick if you want to earn attractive interest rates on your cash while waiting for the market to rebound.
But those who invest with robo-advisors have some great options, too. Wealthfront and Betterment also offer attractive rates on cash balances held in their cash accounts. And you’ll enjoy the flexibility of moving cash to your robo investment account when you’re ready to invest.
With most traditional banks offering a pittance on savings accounts – even when rates rise – it makes even more sense to keep your money with one of these investing players. In addition, because each allows you to spend right from the account, it’s so easy to use them for multiple needs.
5. Brokerage account bonuses and promotions
Finally, it’s also worth pointing out that many brokers give you a little extra juice for opening an account with them. Generally, the more money you bring to the broker, the more they’re willing to give you as a bonus. If you can bring the dough to multiple brokers, you’ll rack up bonuses.
The top players for bonuses can offer up to thousands of dollars of cash if you bring enough money to the relationship. But even those with a more modest bankroll can end up with extra coin in their pocket. In fact, some promotions may require as little as $50 or $100 to participate, so it’s definitely in your interest to check out the best brokerage accounts for bonuses.
When it makes sense to open another brokerage account
Whether you want or need to open multiple brokerage accounts depends on a number of factors, and you’ll want to consider the following issues:
- Do you want to have your money across multiple accounts? Some people prefer to have their money all in one place, while others don’t mind handling multiple accounts. If you don’t mind the extra effort, multiple accounts could make sense for you.
- Do two providers offer something you need? You might have a brokerage that offers a feature you need but it’s not offered at your current provider. For example, you might need a specific account type at Broker A, but you really need the research at Broker B.
- Do you want to take maximum advantage of high interest rates? It could make sense to open multiple accounts and use one as your high-interest cash stash. With many cash accounts operating like checking accounts, you could even spend off it.
- Do you want a cash bonus and don’t mind holding an account open? Many providers offer a cash bonus, but you’ll have to keep the account open for a while to be sure they don’t claw it back, sometimes nine months or even a year.
- Do you want to tax maximum advantage? Some brokerages may provide free options trading – Robinhood and Webull are two notables – but you may like the service and features of another brokerage. If you’re looking to pare your costs to the bone, you could trade options with just the one while doing the rest of your stock trading with the other.
The rivalry among brokerages is a boon for customers, of course. But are you taking advantage of it, or have you continued to stick with only one investment account?
While brokers offer many similar services, there are standouts in each category and certain ways that each broker adds a little something extra. With multiple brokerage accounts, you can take advantage of the strengths of each broker, mixing and matching the qualities that you find valuable. That should save you money and offer a better overall product and experience.