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What Is a Brokerage Account and How Do I Open One? Ready to start buying stocks, bonds, mutual funds and other investments? Opening a brokerage account is the first step. Arielle O'shea, Pamela de la Fuente Mar 16, 2022 A brokerage account is an investment account used to buy and sell securities such as stocks, bonds, mutual funds and ETFs. You can set up a brokerage account at a range of licensed brokerage firms - from pricier full-service stockbrokers to low-fee online discount brokers. You can transfer money into and out of your account much like a bank account, but unlike banks, brokerage accounts give you access to the stock market and other investments. You'll also see brokerage accounts referred to as taxable accounts, because investment income within a brokerage account is taxed as capital gains. This is compared with retirement accounts (such as IRAs) that have a different set of tax and withdrawal rules, and may be better for retirement savings and investing. What is the difference between brokerage accounts and IRAs? Depending on your taxable income and filing status, the long-term capital gains tax rate is 0%, 15% or 20% Many brokers allow you to open a brokerage account quickly online, and you generally do not need a lot of money to do so - in fact, many brokerage firms allow you to open an account with no initial deposit. However, you will need to fund the account before you purchase investments. You can do that by transferring money from your checking or savings account, or from another brokerage account. You own the money and investments in your brokerage account, and you can sell investments at any time. The broker holds your account and acts as an intermediary between you and the investments you want to purchase. There is no limit on the number of brokerage accounts you can have, or the amount of money you can deposit into a taxable brokerage account each year. There should be no fee to open a brokerage account. What are some of the benefits of having a brokerage account? A managed brokerage account comes with investment management, either from a human investment advisor or a robo-advisor. A robo-advisor provides a low-cost alternative to hiring a human investment manager: These companies use sophisticated computer algorithms to choose and manage your investments for you, based on your goals and investing timeline. Robo-advisors are likely a good fit for you if you'd like to be largely hands-off when it comes to your investments. We have a full list of the best robo-advisors. Note: We don't recommend investing money you need within the next five years. If you're saving for a short-term goal, skip the brokerage or investment account and consider these options for short-term investments. Why would some people want to use a "Robo-advisor"? Why are brokerage accounts better for long term investments
