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What is a Brokerage Account, and How Do I Open One?

October 30, 2018

Simply put, a brokerage account is an investment account.

2 min read

You’re a joker. You’re a smoker. And eventually, you may want a broker. You can start with opening a brokerage account.

Your financial plan and tool chest will evolve with time. And while you’ll start out with the basics—checking and savings accounts, credit cards, etc.—you’ll soon be looking for more advanced financial tools and services to grow your money.

And that’s likely to include a brokerage account.

What is a brokerage account?

A brokerage account is an investment account. Simply put, it’s an account that an investor opens with a brokerage firm that is licensed to buy and sell securities, such as stocks and bonds. So, if you want to start investing by buying stocks, bonds, mutual funds, and more, you need to open a brokerage account.

Investors deposit money into a brokerage account, which is held by the brokerage firm, and then place their orders through the firm, which takes the customer’s money and fulfills the order, sometimes for a small fee.

The account owner, or investor, owns the securities in the account, and therefore, is responsible for any taxes associated with capital gains, or return, earned by the portfolio.

Why do I need one?

You need a brokerage account if you want to invest.

If you’re hoping to put your money to work, rather than let it sit in a savings account where it can be eaten away by inflation over time, investing could be a good option. That’s generally why people invest their money: To earn a return, and to keep ahead of inflation. Stock market gains, over time, have outpaced the rate of inflation.

For example, if you had put $1,000 in a savings account and left it there for the past ten years, it would be worth less now than it was when you deposited it due to inflation, or money’s tendency to lose value over time.

Of course, both brokerage accounts and savings accounts have their risks. If your money is in a savings account, for example, it’s exposed to risk from inflation, and it might be subject to bank fees.

If your money is in a brokerage account or invested, on the other hand, you run the risk of your investments losing value. You may also be subjected to fees by your broker, and taxes on accrued capital gains.

How to open a brokerage account

You can open a brokerage account with a broker of your choice, and many firms will let you do so online. Some firms offer different account types, charge fees, and provide a certain range of services depending on how much money you have to invest, so you’ll need to look into the specifics before opening an account.

Consider your financial situation and needs. Do you plan on trading in foreign currencies or crypto? Some brokers may not offer those services. And some may also charge fees every time you make a trade, while others may charge you a monthly account fee.

So, take a look around, and see what options are available to meet your needs.

You can open a brokerage account with Stash with only $5.

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By Sam Becker

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