Apr 8, 2022
What is a Brokerage Account, and How Do I Open One?
By Stash Team
You’ve heard of brokerage accounts, but what are they? Stash explains.
A brokerage account is an investment account, and you need one if you want to add investing into your financial tool chest.
Your financial plan and tool chest will likely evolve with time. Once you have the basics down, like checking and savings accounts and a solid budget, you may want to explore more advanced financial tools and services to grow your money, like opening a brokerage account.
Brokerage accounts for beginners
Congratulations, you’re about to start investing for the first time. Let’s go over some basics before exploring how to open a brokerage account.
Legally, if you want to start investing by buying stocks, bonds, mutual funds, and more, you need to open a brokerage account. The first step for investors is to open an account with a brokerage firm, like Stash, that’s licensed to buy and sell those securities.
Next, investors deposit money into their brokerage account, which is held by the brokerage firm, and then place their orders through the firm. The brokerage firm takes the customer’s money and fulfills the order, sometimes for a small fee.
It’s important to note that the account owner, or investor, owns the securities in the brokerage account. That means the investor is responsible for any taxes associated with capital gains, or returns, earned by their investment portfolio.
The benefits of a brokerage account
If you’re hoping to put your money to work, rather than let it sit in a savings account where inflation could decrease its value over time, investing could be a good option. And, as previously mentioned, you need a brokerage account to start investing.
Generally, 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’d deposited $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. That’s due to inflation, or money’s tendency to lose value over time.
Of course, both brokerage accounts and savings accounts have their risks. In addition to the risks posed by inflation, your bank may charge account fees. If your money is invested through a brokerage account, on the other hand, you run the risk of your investments losing value. You may also be subject to fees by your broker and taxes on accrued capital gains.
Now that you have some brokerage accounts for beginners basics, let’s look at the next step.
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. You’ll need to look into the specifics of how to open a brokerage account with your chosen broker.
Consider your financial situation and needs. Do you plan on trading in foreign currencies or crypto? Some brokers may not offer those services. Some may 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.
Ready to start investing?
Now that you know what a brokerage account is and how to open one, you’re on your way to becoming an investor. With Stash, you can open a brokerage account online with any amount of money*. You can use Stash’s Smart Portfolio to easily create a diversified portfolio. And once you’ve built your portfolio, consider turning on Auto-Stash, which can help you invest small amounts of money automatically. These two tools are designed to help you follow Stash’s guidance for financial well-being, the Stash Way.
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