Can You Have Multiple Brokerage Accounts? When It Makes Sense
Yes, you can have multiple brokerage accounts, just like you can have multiple bank accounts.
There are a few reasons that you might want to open multiple accounts, but there are also a few drawbacks to keep in mind.
Reasons You Might Want Multiple Brokerage Accounts
These are some of the reasons you might want to have more than one brokerage account.
Access to Mutual Funds
Many brokerage companies operate their own mutual funds. For example, Vanguard, Fidelity, and Schwab all have a line of mutual funds that people can invest in.
While there’s nothing stopping you from investing in a mutual fund using a brokerage other than the one that manages it, there can be benefits to using Vanguard to invest in Vanguard funds and Fidelity to invest in Fidelity funds.
If you want to invest in mutual funds offered by different companies, you might want to open accounts at more than one brokerage to take advantage of those perks.
Each brokerage offers tools that its customers can use to research stocks and other investment opportunities. Not all of these tools are made the same and you may find that one brokerage’s research tools are more powerful or fit your needs more effectively than the tools offered by another company.
If you prefer one brokerage for some reason, such as its fee structure or user experienced, but like the research tools offered by a different company, you could open multiple brokerage accounts to access them both.
Some brokerage companies charge commissions when you make certain types of transactions. Depending on your investing strategy, you might want to open multiple accounts to get the lowest fees possible.
For example, you might use one brokerage for investing in mutual funds but choose a different brokerage for trading stocks and options.
If you want to try your hand at active trading or even day trading, access to margin can be very helpful. Margin lets you borrow money and those borrowed funds to invest.
Each brokerage sets margin costs and can change those margin costs as it sees fit. You might want to open a few different brokerage accounts so you can take advantage of whichever offers the lowest margin costs at a particular time.
Money Market Rates
When your money isn’t invested in the market, your brokerage will keep your cash in a money market fund. The money in this fund will earn some returns, sort of like interest on a savings account.
Each brokerage operates its own money market fund and the interest rates can vary. If you want to earn the best rate on your uninvested cash, having multiple brokerage accounts gives you multiple money market funds to choose from.
Sign Up Bonuses
Like banks, brokerage companies often offer sign up bonuses to customers who open a new account. Typically, earning these bonuses involves transferring funds into your new account, with larger deposits earning larger bonuses.
If you don’t mind a bit of effort and have the money to move around, you can earn hundreds or thousands of dollars in bonuses by opening up new brokerage accounts to earn their sign up bonuses.
Much of the time, you’ll have to keep the account open for a minimum period of time. Closing the account early will mean forfeiting the bonus, so you may wind up having many accounts open at one time.
Another benefit of doing this is that it gives you a chance to try many different brokerage companies. You can compare all of their features and user experience to find the one that you like the best.
Access to Your Money
No brokerage company is perfect. Technical problems do happen and if a brokerage’s app or website goes down, you might find yourself unable to access your money. If this happens during a huge market move, you might miss out on a major investing opportunity.
Having accounts at multiple brokerages gives you some insurance against this scenario. If one goes down and the other stays up, you can make trades using the broker that’s still operating.
Each brokerage has different features, so having accounts with multiple companies can help you get access to the features you desire.
For example, some brokers will let you purchase fractional shares of companies, making it easier to invest specific dollar amounts compared to being forced to buy whole shares. You might like one broker’s mobile app more than another, which is important if you plan to do a lot of trading while on the go.
If you can’t find a brokerage that offers all the features you want, you can use more than one.
Banks offer insurance from the FDIC, reimbursing customers if the bank is unable to return their deposits for whatever reason. Brokerages have similar insurance from the Securities Investor Protection Corporation (SIPC).
SIPC insurance doesn’t protect you from investments losing value, but if your brokerage goes under, the SIPC will reimburse you for any investments lost in the shuffle.
SIPC offers up to $500,000 in protection (up to $250,000 in cash).
If you open accounts at multiple brokerages, the SIPC limit applies to each account independently, meaning you’ll receive extra protection. If you have more than $500,000 to invest, spreading it between multiple brokerages can reduce the risk you face from one of your brokerages closing down.
Teaching a Child to Invest
If you have a child who wants to learn about investing, you can open a new brokerage account jointly with your child. This gives you the opportunity to manage the account with your child’s assistance, giving them real-world investing experience.
Opening the account with a brokerage firm other than the one you use for most of your money helps you keep the account separate and makes it easier for your child to see how their portfolio performs.
Drawbacks of Having Multiple Brokerage Accounts
Having multiple brokerage accounts can add some complications to your life, so it’s worth considering the drawbacks before opening more than one account.
Recordkeeping and Taxes
If you have more than one brokerage account, that means that you’ll have to keep track of each account separately. Each brokerage will send you statements and you’ll need to enter information about each of your brokerages at tax time.
Dealing with taxes is already stressful, so adding extra paperwork and recordkeeping to the process just adds to the difficulty.
This can get especially complex if you’re dealing with things like tax-loss harvesting as the wash-sale rule applies across all of your brokerage accounts. Keeping track of wash-sales, which occur when you sell an investment for a loss then buy a substantially similar one within thirty days, can be incredibly hard if you’re transacting in multiple accounts.
Some brokerage companies charge account fees, especially if you leave your account inactive or have a very small balance.
If you open lots of accounts and spread your assets among them, you might wind up incurring fees that will eat into your returns. You have to weigh whether the fees are worth the benefits of having access to multiple accounts.
Missing Out on Account Perks
Many brokerages give customers additional perks when they hit certain balance thresholds. For example, Vanguard waives account fees for customers with more than $50,000 in their account and offers trust services to those with more than $1 million in their account.
If you split your balance between multiple brokerages, you may miss out on valuable perks that the companies offer to people with large balances.
What to Look For In a Brokerage Account
If you’re comparing multiple brokerage accounts and want to decide which is best, there are a few things you should compare.
The first thing to look at is the tools and features the brokerage provides. What’s useful for you depends on your investing strategy.
Mutual fund investors won’t benefit as much from powerful stock screeners and research tools as compared to active traders. Look for tools and features that fit your investing style.
Another thing to consider is fees.
This includes the fees charged by the brokerage and the fees charged by the mutual funds it offers. Investment fees can have a massive impact on your portfolio’s returns.
Look for companies that charge lower fees and expense ratios for their funds, or that offer ways to avoid the fee entirely.
You should also think about the history and reputation of the brokerage. Older, established companies with long histories tend to be more stable and often have better customer support and are more reliable. Newer brokerages may have more technical issues or have trouble handling certain situations.
Having multiple brokerage accounts can be useful for a number of reasons. From access to additional research tools to taking advantage of a specific broker’s mutual funds, it can be tempting to open accounts with multiple companies.
However, keep in mind that having multiple accounts means extra paperwork and recordkeeping, as well as more potential fees. That means you should only open multiple accounts if you plan to use them.