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A brokerage account is a financial account that holds investments: stocks, bonds, ETFs, mutual funds. Think of it like a bank account, but instead of just holding cash, it can hold pieces of companies.
You open one at a brokerage firm: Fidelity, Charles Schwab, Vanguard, Robinhood, E*TRADE. The firm executes trades on your behalf and keeps custody of your investments.
What makes a good brokerage
- $0 commissions on stock and ETF trades: standard at all major firms now
- Wide selection of low-cost index funds and ETFs
- Strong customer service when you have questions
- SIPC insurance: protects up to $500,000 if the brokerage fails (different from FDIC)
- Fractional shares: lets you buy $50 of a $300 stock
Brokerage vs. bank account
Bank accounts are FDIC-insured against bank failure but earn very little. Brokerage accounts are SIPC-insured against brokerage failure but offer real returns through investing. They serve different purposes. Most people need both.
If you're starting out, the big three (Fidelity, Schwab, Vanguard) all work great. Pick one based on the interface you find easier. The actual product underneath is nearly identical.
What this lesson is NOT
A brokerage account is not a bank account: the cash and investments inside it work differently, and the holdings can lose value. This lesson explains what the account is and what makes one good; it does not recommend a specific brokerage.
Quick check on this lesson
Answer each question and we’ll show you why the right answer is right, and why the others aren’t.
- 1.
According to the lesson, what is a brokerage account?
- 2.
What does SIPC insurance protect, and up to what amount?
- 3.
What are 'fractional shares' as described in the lesson?
- 4.
How does the lesson contrast brokerage accounts with bank accounts?
- 5.
Per the lesson's tip, which 'big three' brokerages are recommended for someone starting out?
0 of 5 answered