Whether you want to save for retirement or buy stock in your favorite company, you’re going to need a brokerage account before you can get started. Brokerage accounts are different from regular bank accounts because they give you access to securities like stocks and bonds. Not to mention some brokerage accounts come with special tax advantages.
This article will cover the best brokerage accounts you can choose from. For those who are new to investing it will also cover the basics of what brokerage accounts are and how they work.
Overview: Best brokerage accounts for beginners
- Best overall for new investors: TD Ameritrade
- Best mobile trading app: Robinhood
- Best for active traders: E*TRADE
- Best for casual traders: Webull
- Best all-in-one-brokerage: Fidelity
- Best customer service: Charles Schwab
- Best for passive investing: Vanguard
- Best account options: Ally Invest
TD Ameritrade: Best overall for new investors
What sets TD Ameritrade apart is its extensive library of free educational resources that new investors can use to learn about investing.
thinkorswim is TD Ameritrade’s trading software that allows you to make trades anywhere. New investors can use paper trading to simulate investing without risking any money, while experienced investors can use the same software to test new strategies or learn new skills.
- Educational library and training tools. TD Ameritrade’s suite of free resources and simulation software makes it one of the best platforms for new investors.
- Customer support. TD Ameritrade is known for its world-class customer support, which is available 24/7 on most communications platforms, including Twitter.
- Fewer no-cost mutual funds. TD Ameritrade only offers around 1,600 no-cost mutual fund options. This is less than some of its competitors.
- No crypto trading. TD Ameritrade does not currently support cryptocurrency trades.
Robinhood: Best mobile trading app
Robinhood was a disrupter when it launched its mobile trading app in 2015. Its mission is to provide everyone with access to wealth-building investing activities and it does this by offering users commission-free trades.
Advanced traders can join Robinhood Gold, which allows you to trade on margin. This option costs $5 a month, with margin investments costing 6.50%. Proceed with caution: Margin trading is a risky business.
- No-fee trades. Buy and sell stocks, ETFs, and crypto without paying trading fees.
- User-friendly app. The app is easy to use, allowing you to make trades right from your phone.
- No minimum to get started. You can open a Robinhood account and start with as little as $1.
- Trade suspensions. Robinhood got into some hot water after it suspended trading during the GameStop short squeeze of 2021. They’ve run into trouble with regulators over a few other issues too.
- Limited options. Robinhood doesn’t give you the full suite of investment options you might find at other firms. While you can buy stocks, ETFs, and crypto on the platform, you can’t buy mutual funds or bonds.
E*TRADE: Best for active traders
E*TRADE is a financial services company that is part of Morgan Stanley. It offers $0 commission trades and an advanced trading platform that makes it perfect for active traders.
- Advanced analytics. Power E*TRADE is an advanced app with great charting tools.
- $0 commissions. E*TRADE eliminated its $6.95 trade commission back in 2019. It is now one of the most cost-effective brokerage options available.
- Wide selection of investments. Investors can choose from a wide variety of investment options including stocks and bonds.
- No crypto trading. E*TRADE does not support cryptocurrency at this time.
- Transfer fees. If you want to move money out of E*TRADE to another brokerage, be prepared to pay $25 for a partial transfer and $75 for a full transfer.
Webull: Best for casual traders
If you’re looking for an easy-to-use, no-frills trading platform, Webull could be a good fit for you.
Webull provides a very readable dashboard of the top stocks and best-performing industries. Its mobile trading app gives you access to a range of investment options — including crypto — with no trading fees.
New investors who fund an account on the platform can even get free stocks just for joining. Terms apply.
- Lots of investment options. Webull gives investors access to 44+ different cryptocurrencies, as well as fractional shares.
- Analytical tools. Execute advanced technical trading strategies.
- No educational resources. Inexperienced investors with a lot to learn probably shouldn’t turn to Webull.
- No interest on uninvested cash. Some other brokerage firms partner with banks to offer interest for uninvested cash. But any cash at Webull that isn’t invested will sit idle in your account.
Fidelity: Best all-in-one brokerage
Fidelity is one of the most well-known financial services companies out there. In addition to offering taxable brokerage accounts, Fidelity also has a number of tax-advantaged options, like health savings accounts (HSA).
One of Fidelity’s key selling points is its zero-expense-ratio index funds. An index fund typically tracks a specific index in the stock market, like the S&P 500. It gives you the opportunity to invest in a basket of top-performing companies without having to pick individual stocks. While most index fund managers typically charge a small fee, Fidelity is the first company to offer index funds with no fees.
Fidelity’s variety of account options also makes it a good one-stop-shop for investors. You can have a taxable brokerage account at Fidelity, along with your retirement accounts, an HSA, and a 529 College Savings Plan. Fidelity also offers a suite of educational resources to help new investors build a comprehensive portfolio to meet their personal financial goals.
- Zero-expense ratio index funds. These are highly cost-effective, low-fee funds to maximize the return on your investments.
- Retirement planning. Fidelity offers a library of educational resources that are great for someone looking to start saving for retirement.
- No crypto. Fidelity does not support crypto at this time.
- High broker fees. Fidelity doesn’t charge a commission on self-initiated trades but it does charge fees to tap into its network of financial advisors.
Charles Schwab: Best customer service
Charles Schwab is another well-known financial services company that offers both taxable and tax-advantaged brokerage accounts. Schwab invests in research to build in-house expertise that anyone can use, no matter how much money they have. If you have questions or want to learn more, an expert is only a phone call away.
Charles Schwab also offers its own index funds tracking a variety of indices, including the S&P 500, large-cap stocks, the bond market, and REITs. With low expense ratios, Schwab’s index funds are a cost-efficient passive investing option.
- World-class research. Schwab customer service reps are experts who can help you learn more about investing and the products Schwab offers.
- Cost-effective index investing. The suite of Schwab’s low-cost index funds makes it a great option for passive investors.
- No crypto. Schwab doesn’t offer direct crypto investing, but it does give you access to crypto-related products like Grayscale Bitcoin Trust.
- Foreign stock fees. Schwab offers low-cost options for U.S.-traded companies, but not for foreign companies.
Vanguard: Best for passive investing
Vanguard is one the leading brokerage firms out there thanks to its famous founder, Jack Bogle. Fans of Vanguard — known as Bogleheads — follow Jack’s simple investing philosophy of letting compound interest grow over time, making Vanguard one of the best platforms for passive investors.
Vanguard is a pioneer of low-cost index funds. Investors use index funds to save money without having to develop technical expertise or make active trades. The “set it and forget it” mindset works well with Vanguard, where investors can benefit from compounding interest without paying expensive management fees.
- Low-cost index funds. Vanguard offers some of the most cost-effective and best-performing index funds.
- Cheap mutual funds. In addition to index funds, Vanguard’s Admiral Shares mutual funds are some of the cheapest mutual funds available. The minimum required to invest in their mutual funds is $3,000.
- Not user friendly. Vanguard’s platform is a bit old school and might not be the best option for active traders.
- Basic. It’s another no-frills option, so you won’t get access to advanced analytical tools or research with Vanguard.
Ally Invest: Best account options
Ally Invest is the trading platform affiliated with Ally Bank. It offers no-cost trades that appeal to both new and experienced investors.
Ally Invest offers a variety of account options depending on how involved you want to be. You can choose to open a self-directed account, invest in a robo-advisor portfolio, or work with Ally’s wealth management team. This gives you the flexibility to invest on your own or to capitalize on Ally Invest’s in-house expertise.
- Options for all types of investors. You can manage your own investments if you want, but Ally Invest gives you options so you don’t have to.
- Integration with Ally Bank members. Ally Invest allows you to move money easily between all your accounts if you already bank with Ally.
- No crypto. Ally Invest offers a variety of securities but does not support crypto at this time.
- No in-person branches. Ally is fully digital, so if you’re looking for in-person support this brokerage firm might not be the best for you.
How I chose these brokerage accounts
I chose these brokerage accounts based on three core factors:
- Securities available to investors
- User experience
My logic: If a platform is hard to use and has a lot of fees you’re probably not going to benefit from it. Plus, a brokerage firm with limited offerings can make it hard to build a well-diversified portfolio. A good beginner brokerage account should have low fees, a variety of investment options to choose from, and a good user experience.
What is a brokerage account?
Most brokerage firms allow you to open an account online. Many even have apps where you can get started right from your phone.
You also don’t need a lot of money to get started either. Once you fund your brokerage account, you can begin trading stocks. An important thing to note: The brokerage firm doesn’t buy securities for you. After you fund your account it is up to you to begin investing. If you don’t, your cash will just sit there collecting dust.
Types of brokerage accounts
The brokerage account you’re probably most familiar with is your retirement account. Whether you have an employer-sponsored 401(k) or your own IRA, retirement accounts are actually brokerage accounts.
Read more: A beginner’s guide to saving for retirement
Aside from retirement accounts, there are a couple of other types of accounts you’ll want to be aware of.
A self-directed brokerage account is one where you make your own stock picks. Robinhood is a good example of this type of account. Unlike your retirement account, there are no tax benefits with self-directed brokerage accounts.
If the idea of picking your own stocks is overwhelming, you can opt to work with a financial advisor. These are individuals who act as brokers and are paid on commission to make trades on behalf of their clients. Sometimes they are paid a percentage of the total assets they manage. Other times they are paid on a per-trade basis.
When you work with a financial advisor you’re essentially paying for their expertise. They pick stocks and build a portfolio based on their knowledge of the market. The more active your advisor is, however, the more it will cost you.
Read more: Do you need a financial advisor?
An alternative to using a human financial advisor is to work with a robo-advisor. These are proprietary algorithms that use technology to manage your portfolio. They basically automate the entire investing process.
One of the benefits of using a robo-advisor is that it allows you to invest in a pre-picked portfolio while leveraging investing strategies like tax-loss harvesting. You essentially get a lot of the expertise a human advisor would give you at a fraction of the cost.
These different types of accounts each come with their own costs and benefits. It’s important to figure out what your overall investing goal is to figure out which type of account will work best for you.
How do brokerage accounts work?
Brokerage accounts work like bank accounts with extra benefits. Like a bank account, you can deposit money into them. But instead of letting the money just sit there and collect interest, a brokerage account allows you to buy assets, like stocks or bonds.
Whatever assets you purchase through your brokerage account are yours to keep. At any time you can sell them (although there are some tax implications when you do this) to turn them back into cash. Some assets earn dividends that generate passive income.
You can have as many brokerage accounts as you want and there is no limit to how much money you can invest (except for tax-advantaged accounts). There are no fees to open a brokerage account, although there may be fees to make trades or to work with a financial advisor.
What is a brokerage fee?
Brokerage fees are commissions a broker charges to make trades. Sometimes you are charged a flat fee while other times you are charged a percentage of the assets your broker holds for you.
Where you’ll find the most fees is if you work with a full-service broker. These individuals are paid a fee for the trades they make on behalf of clients. You’re not actually paying them just to make trades though. You’re also paying for the research they do to build your portfolio and the expertise they bring to help you manage your investments.
How many brokerage accounts can I have?
You can have as many brokerage accounts as you would like. In fact, you’ll probably want to have several different accounts depending on your goals.
A retirement account, for example, is going to be different than an account where you buy and sell stocks frequently. Retirement accounts are tax-advantaged and because of that, they have contribution limits. If you use an employer-sponsored retirement plan, you might not even get a say in who brokers your account.
A taxable, self-directed account where you buy and sell individual stocks is different than a retirement account. For a self-directed account, you might prefer to use a brokerage firm with an easy-to-use app to make daily trades.
Are brokerage accounts FDIC insured?
No, brokerage accounts are not FDIC insured. But that’s not exactly a bad thing.
The FDIC — or Federal Deposit Insurance Corporation — protects deposit bank accounts (aka your checking and savings account). They don’t protect money invested in the stock market or other investment instruments.
Those investments are protected by a different agency called the Securities Investor Protection Corporation (SIPC). The SIPC will intervene if a broker goes bust. In that event the SIPC will either transfer your portfolio to another firm, or they will work outright to rebuild it, buying new assets to make up for any that are lost.
Like the FDIC, SIPC does come with some stipulations. For one, a brokerage has to be a member that qualifies for SIPC coverage. And that coverage is limited to up to $500,000 per customer.
How are brokerage accounts taxed?
Brokerage accounts are taxed differently depending on the type of account you have and how long you hold assets for.
Retirement accounts are usually tax-advantaged. In the case of a traditional 401(k), this means that you won’t pay taxes on your account contributions, but you will pay taxes later when you withdraw money in retirement. However, in the case of a Roth IRA, you will pay taxes on your account contributions, but won’t pay taxes on the withdrawals in retirement.
Read more: IRA vs. 401(k)
Self-directed brokerage accounts don’t come with any tax benefits. You invest money that has already been taxed and you pay taxes on your investments when you sell.
Selling an asset triggers a taxable event. If you’ve held it for less than a year it is considered a short-term capital gain. This is taxed at your current income bracket.
If you hold an asset for a year or more, however, it will be counted as long-term capital gains. You’ll pay between 0% and 20% depending on your tax bracket. Long-term capital gains taxes are usually lower than income taxes, which is why it’s advised to hold onto a stock for at least a year before selling it.
A brokerage account gives you the ability to put your money to work. Most firms offer access to securities like stocks and bonds, while others give you access to cost-effective index funds. These are ways you can grow your money beyond collecting interest in a savings account.
You can have as many brokerage accounts as you would like, and those accounts can vary depending on your goals. If you’re not sure where to get started, set a financial goal — like saving for retirement — and find a brokerage firm that gives you the best bang for your buck with respect to that particular goal.