Should You Open a Checking Account With a Brokerage vs. a Bank?

A free checking account is a rare sight among many of the nation’s largest banks.

In fact, free checking accounts are being harder to find at the 10 biggest brick and mortar banks in the U.S.

While many Americans can turn to online banks, community banks and credit unions for free checking, there's another solid option:

Brokerage firms.

It's easy to forget that brokerage firms are also potential places for free checking accounts.

Thanks to constant improvement in financial technology, banking with a brokerage is not as much of a hassle as one might expect it to be.

This may explain why they’ve become increasing popular.

Another reason for the increase in popularity:

The availability of checking accounts with more consumer-friendly fee structures.

That nice perk is made possible by the brokerages’ lack of overhead needed to operate physical branches.

No monthly fees, ATM rebates and interest on deposits are some of the common traits of brokerage checking accounts.

We dive deeper on exactly what you need to know when it comes to opening a free checking account at brokerage firms.


What Are Online Brokerage Accounts?

Brokerage accounts are investment accounts that let you buy and sell stocks, bonds, mutual funds, and other assets.

In the past, you had to work with a traditional broker -- this was a person who handled trades for you.

If you wanted to buy or sell an investment, you had to contact your broker to make a trade.

Online brokerage accounts let you manage your portfolio on the Internet.

You don’t have to deal with a live person to make investments and can do everything yourself.

Online brokerage accounts are much more affordable than traditional brokers.

It only costs a few dollars to make a trade with an online brokerage account and the balance requirements to open an account are much smaller.

You can also make trades more quickly with an online brokerage account; you just need to log in your online account and decide which investments to make.

On the other hand, online brokerage accounts have less support.

You need to make your investment decisions yourself and you won’t have a professional investor helping you manage your portfolio.

While some online brokers let you contact a financial advisor for support, the advisor won’t be actively watching your portfolio like a traditional broker.

RELATED: Why Choose a Live Financial Advisor Over an Automated Advisor?

Also, online brokerage accounts don’t have as many investment options.

If you want to buy more specialized investments like international stocks or foreign currencies, you might have to work with a traditional broker.

Types of Brokerage Firms

Brokerage firms operate to assist investors in the buying and selling of financial products including public stocks and securities.

Depending on their level of service, they may also offer financial advice and other resources specifically designed to meet the needs of an investor.

Brokerage firms come in several different variations.

Depending on the needs of the investor, it is wise to choose the one that best matches your needs and financial goals.

To get a better understanding of which type of brokerage firm may be right for you, here is a breakdown of what to expect from each kind:

Captive Brokers

This type of broker is relevant when investors are interested in mutual fund purchases.

Captive brokers are those whose firm owns part of the mutual fund company so they are inclined to sell only their own funds rather than encourage investors to look into other company’s funds.

A possible downside to using this type of broker:

The firm may not have your best financial interests in mind, so investors need to be aware of this type of brokerage firm and their ultimate goals.

Independent Brokers

Unlike captive brokers, independent brokerage firms are not connected to any mutual fund company nor are they part of a chain brokerage.

Typically, the independent will be more forthcoming with advice that suits your needs rather than catering to their own interests.

Full Service Brokerage Firms

This type of brokerage firm offers customers the full scope of services, including the professional advice to assist investors in understanding investment money options and trade assets.

Using this type of brokerage firm will cost the most for services but it will also provide the most resources and tools necessary to make financial choices.

They research various aspects of the market to make investment recommendations to their clients.

Examples of Full Service Brokerage Firms

Firm Services & Products Offered
Edward Jones Money Market Funds, Credit Cards & Loans, Savings Accounts, Wealth Management, Stocks, Bonds, Mutual Funds, Insurance, Annuities, and Check Writing
UBS Bank UBS Resource Management Account (RMA), UBS Mortgage, Credit & Debit Cards, Financial Planning, Education Planning, Estate Planning, Retirement Planning, and Wealth Planning Insights
Wells Fargo Advisors Stocks, Bonds, Funds, ETFs, Annuities, Futures & Commodities, CDs, and Brokerage Cash Services
Morgan Stanley Mutual Funds, Alternative Investments, Closed-End Funds, Variable Insurance Funds, Money Market Funds, Liquidity Funds, Separately Managed Accounts

Discount Service Brokerage Firm

This type of brokerage firm offers service that only deals with the trading aspect of managing investments for their customers.

As not as many resources are provided through these services, their cost is considerably less than a full service firm, with costs ranging 50% or more lower.

Deep Discount Brokerage Firms

This type of brokerage firm provides investment services that are even less costly than regular discount firms.

Since they only deal with specific aspects of investing, specializing in one area of trading, their services cost quite a bit less. 

Their services can cost nearly 90% less than a full service firm’s costs.

Online Discount Brokerage Firms

Brokerage firms that work online are much like the deep discount firms, except their investment resources and support are available for online trading only.

Their costs are typically low and for some, the immediate trading and other investment services they offer are a definite pro of using online services.

A con of online service for some investors:

The impersonal support through online communication rather than in-person consultations.

Brokerage firms can be a resource for the beginner investor as well as the seasoned trader.

Depending on your specific financial needs and goals, a brokerage firm can help facilitate various aspects of investments.

It is wise to understand the different types of brokerage firms and services available that will meet your investment needs.

How to Find the Right Brokerage for Your Checking Account

To find the right brokerage firm to open your checking account with, you need to consider a few points:

Fees

What kind of fees does the brokerage you're looking into charge?

Brokers usually charge a monthly fee as well as fees for trades (a trade is when you buy or sell an investment.)

If you plan on making trades regularly (at least a few times per month), you should look for an account with lower fees for trades.

On the other hand, if you don’t plan on trading often, look for an account with a lower monthly fee.

Minimum account balance

You also need to consider the minimum account balance needed to open an account.

Some online brokers have no minimums while others can require several thousand dollars.

Depending on how much money you have to invest, this could limit your choices.

Different brokers have different investment options.

If there’s a particular kind of investment you want to make, for example, you really want to buy stocks of small companies, make sure your online broker offers these investments.

Some online brokers also offer special promotions for new accounts.

They might give you a number of free trades or give you a cash bonus for signing up.

If the decision is close between a few companies, this can help you make up your mind.

Customer service is key

Finally, check what kind of customer service you’ll receive with your online broker.

Some companies only offer limited service, such as basic phone and/or email support to manage your account but not to give you advice.

Others let you speak with financial advisors and have local offices where you can speak to someone in-person.

Companies that offer more service are usually more expensive so you need to decide if this help is worth the extra cost.

Best Brokerages With Checking Accounts

Here is a comparison of some of the more popular accounts from major U.S. brokerages:

TD Ameritrade Cash Management Account

With no monthly maintenance fees, unlimited check writing, and free ATM withdrawals, TD Ameritrade's Cash Management Account is a solid choice for a checking account at a top brokerage.

Enjoy all of the luxuries of a typical checking account, plus the flexibility to trade, invest, and spend all from one account.

In addition, you can apply for a TD Ameritrade Client Rewards Card, with an exclusive 10% bonus when you redeem your rewards into an eligible TD Ameritrade account.

Plus you can trade for free for 60 days, and get up to $600 when you make an initial deposit of $2,000 in your account.

Like with most bank accounts, the deposits held at brokerages are insured up to $250,000 per depositor per account type.

Fidelity's Cash Management Account

Fidelity’s Cash Management Account stands out because customers can have up to $1.25 million in insured deposits, since the brokerage partners with multiple banks.

The Fidelity Cash Management Account is a unique account. It combines features of checking and savings accounts.

Like a checking account, the Fidelity Cash Management account offers a debit card you can use. You can use the card to make purchases at stores that accept cards, or you can use it to withdraw cash from ATMs.

Some of the main features of this account include, ATM Fee reimbursements, overdraft protection, no monthly maintenance fee, and no minimum balance requirement. 

If you already work with Fidelity for investing, it’s a great account to have because it lets you keep your finances centralized.

Charles Schwab High Yield Investor Checking Account

One of the best aspects of the Charles Schwab Bank High Yield Investor Checking Account is that you’ll never pay a fee to access your cash.

When you open the account, Schwab will automatically open a linked Schwab One brokerage account (required to waive the monthly maintenance fee). You won’t have to pay any fees for the account’s opening or maintenance.

In addition, this checking account does pay an interest rate that is much higher than what you'd expect from an interest checking account from a big bank.

With no monthly maintenance fee, no minimum balance requirement, and very minimal other fees charged, Charles Schwab is a top choice for your checking, and investing, needs.


Final Thoughts

In many aspects, these feature-packed brokerage checking accounts outshine the basic checking accounts offered through the major banks, which tend to have monthly fees, out-of-network ATM fees and lack the ability to earn interest.

However, there are some caveats to brokerage checking accounts.

As seen with Charles Schwab and and Scottrade, checking accounts must be linked to a brokerage trading account, which has its own fee policy.

Additionally, with few physical locations, the brokerages may not be able to provide widespread in-person service that can easily be found with bigger banks.

If you find that branch visits are rare occurrences, such an inconvenience won’t have a major impact on your day-to-day financial life.

Wondering if you’ll be able to make the switch to a brokerage checking account?

Since these checking accounts have no monthly fee, you can open one to test it out first, alongside your existing account.

If you find that you’re able to conduct your daily finances without a hiccup, you’ll know that a brokerage checking account is right for you.

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