· Listen
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.
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