Brokerage Checking Accounts: Pros And Cons

RgStudio/GettyImages; Illustration by Hunter Newton/Bankrate

A brokerage checking account is basically a checking account offered by an investment company instead of a regular bank. The main difference is that your money doesn’t just sit in one place — it gets automatically moved around to different FDIC-insured banks behind the scenes.

You use a brokerage checking account just like any other checking account with a debit card, checks and online banking. The difference is that it’s easier to invest your money when you’re ready, and you often get better perks than regular banks offer.

Here’s what you need to know about whether one of these accounts makes sense for you.

What is a brokerage checking account?

A brokerage checking account is a checking account you get from an investment company like Schwab, Fidelity, or TD Ameritrade instead of a regular bank like Chase or Bank of America.

Learn more: What is a checking account and how does it work?

The big difference is what happens to your money behind the scenes. When you put money in a regular bank account, it stays at that one bank. When you put money in a brokerage checking account, the company automatically moves it around to different partner banks.

Why do they do this? It’s called “cash sweeping,” and it gives you FDIC insurance protection on more than the usual $250,000 limit. If you have $500,000 in cash, a regular bank account only protects the first $250,000. A brokerage account might spread that money across multiple banks so all $500,000 is protected.

From your day-to-day perspective, it works exactly like a regular checking account. You get a debit card, can write checks, pay bills online and use mobile banking. The difference is that your account is connected to an investment platform, so you can easily buy stocks or bonds when you want to.

Advantages and disadvantages of a brokerage checking account

Here are some of the pros and cons of brokerage checking accounts.

Is a brokerage checking account right for you?

Brokerage checking accounts aren’t for everyone. Here’s when they make sense and when they don’t.

You might like a brokerage checking account if you:

• Already have investments with the same company
• Keep more than $250,000 in cash and want extra FDIC protection
• Travel internationally and hate paying ATM fees
• Want to simplify your financial life by having fewer accounts
• Don’t need traditional banking services like mortgages

You should probably stick with a regular bank if you:

• Want to earn the highest possible interest on your cash
• Like having a local branch you can visit
• Need other banking products like loans or mortgages
• Prefer keeping your everyday banking separate from your investments
• Don’t invest money regularly

Related reading: Where should you keep your emergency fund?

How to choose a brokerage checking account

If you decide a brokerage checking account makes sense for you, here’s what to look for.

• Make sure there are no fees. You shouldn’t pay monthly maintenance fees, minimum balance requirements, or charges for basic transactions. Free ATM access should be standard.
• Check the interest rate. While these accounts typically don’t pay as much as dedicated savings accounts, some offer better rates than others. Compare what you could earn.
• Look at how everything connects. Some companies make it really easy to move money between checking and investing, while others treat them as separate accounts that require transfers.
• Consider the ATM network. If you travel a lot, worldwide ATM fee reimbursements are valuable. If you rarely use ATMs, this doesn’t matter much.
• Understand the FDIC coverage. Make sure you know how the cash sweep program works and that your money is actually protected across multiple banks.

Before choosing an account, you may also want compare brokerage checking accounts against traditional checking accounts to see what fits best for you. Check out Bankrate’s picks of best checking accounts to help make your shopping smoother.

Comparing your options: brokerage checking accounts

Here’s a rundown of some of the best brokerage checking accounts offered:

Bottom line

Overall, a brokerage checking account can be a convenient and cost-effective option for managing your finances. However, it’s important to carefully consider your individual financial goals and habits before deciding if it’s the right choice for you. If you choose to open a brokerage checking account, be sure to prioritize features such as free ATM access, ATM fee reimbursement and no monthly fees.

Furthermore, make sure to understand where your funds are being deposited and how they’re insured. Ultimately, by weighing the pros and cons and doing thorough research, you can make an informed decision and find a brokerage checking account that best fits your needs.