Curated by: Rubric Advisors
Personal Finance
What Is a Brokerage Account? Types, Fees, and How to Open One
A brokerage account lets you buy and sell investments like stocks, bonds, and ETFs. Learn about account types, fees to watch, SIPC protection, and tax reporting.
What Is a Brokerage Account? Types, Fees, and How to Open One
1 / 7
What a Brokerage Account Is
- A brokerage account is an investment account held at a licensed broker-dealer
- It lets you buy, hold, and sell securities such as stocks, bonds, ETFs, and mutual funds
- You deposit cash, place trade orders, and the broker executes them on your behalf
- Unlike a bank account, brokerage accounts are not FDIC-insured
Try Our Free Tools
Full Guide
What a Brokerage Account Is
- A brokerage account is an investment account held at a licensed broker-dealer
- It lets you buy, hold, and sell securities such as stocks, bonds, ETFs, and mutual funds
- You deposit cash, place trade orders, and the broker executes them on your behalf
- Unlike a bank account, brokerage accounts are not FDIC-insured
Taxable vs. Tax-Advantaged Accounts
- Taxable brokerage accounts have no contribution limits or early withdrawal penalties
- You owe taxes on dividends, interest, and capital gains in the year they occur
- Tax-advantaged accounts (IRA, 401k, HSA) offer deferrals but have contribution limits
- Most investors benefit from using both, tax-advantaged for retirement, taxable for flexibility
How to Open an Account and What You Can Buy
- You will need your Social Security number, government-issued photo ID, and a funding source
- Choose between individual, joint (with a partner), and custodial (for minors) account types
- Stocks and ETFs are the most common purchases, most brokers offer commission-free trading
- Bonds, mutual funds, and options are also available, sometimes with minimum purchase amounts
Broker Types and Fees to Watch
- Full-service brokers provide personalized advice and planning, at higher fees
- Discount and online brokers offer self-directed trading at low or zero commissions
- Fund expense ratios are ongoing annual fees, even a 0.50% difference compounds over time
- Watch for account maintenance fees, inactivity fees, transfer-out fees, and margin interest
SIPC Protection and Margin Accounts
- SIPC protects up to $500,000 per customer (including $250,000 in cash) if a broker fails
- SIPC does not protect against investment losses, only missing securities if the firm closes
- A margin account lets you borrow to buy securities, amplifying both gains and losses
- Beginners are generally better served by cash accounts until they understand margin risks
Tax Reporting: 1099 Forms
- 1099-B reports proceeds from sales, used to calculate capital gains and losses
- 1099-DIV reports dividend income, including qualified dividends taxed at lower rates
- 1099-INT reports interest income from bonds, CDs, and cash balances in the account
- Brokers typically deliver consolidated 1099s by mid-February, review for accuracy
Transferring Accounts (ACAT)
- ACAT lets you move assets between brokers without selling, preserving your cost basis
- The process typically takes 5-8 business days and is initiated at the receiving broker
- Some brokers charge a transfer-out fee ($50-$75), the receiving broker may reimburse it
- Transferring in-kind avoids triggering taxable events from selling and rebuying
Related Topics
Personal Finance
How to Start Investing: A Beginner's Step-by-Step Guide
Ready to invest but unsure where to begin? Learn about building an emergency fund first, choosing accounts, picking beginner-friendly investments, and avoiding common pitfalls.
Investing & MarketsStock Market Basics: How It Works and How to Get Started
The stock market can seem intimidating to beginners. Learn how exchanges work, what drives prices, common order types, and how to avoid typical first-time mistakes.
Personal FinanceABLE Accounts: Tax-Advantaged Savings for Disabilities
ABLE accounts let individuals with disabilities save up to $100,000 without losing SSI or Medicaid benefits, with tax-free growth for qualified disability expenses.