How to open a brokerage account: step by step instructions
A brokerage account is an account that allows you to buy securities like stocks, bonds, mutual funds, and ETFs. By investing in these assets through a brokerage account, you can build up significant wealth over time.
Opening a brokerage account makes sense for people who have extra savings after building up an emergency fund, or anyone investing for their retirement or their children’s education.
How to Open a Brokerage Account: 3 Easy Steps to Get Started
1. Select a broker
You have a few options to determine where you want to open your brokerage account. For most people, opening an account with an online broker such as Charles Schwab or Vanguard can make more sense. Online brokers generally do not have a minimum account and offer commission-free transactions in stocks and ETFs. Check out our online broker reviews to determine which broker best suits your needs.
You can also open an account with a full-service broker, which will give you a financial professional who will oversee your account. While it can be helpful to ask a knowledgeable professional questions, full-service brokers typically work with larger clients and can charge large commissions for placing trades.
Robo-advisers are another option for people who prefer a more passive approach and aren’t looking to make their own trading decisions. Betterment and Wealthfront are examples of the best robo-advisors who can create diversified portfolios for you based on your risk tolerance and financial goals. These accounts usually come with low account minimums and the fees are usually much lower than a human financial advisor.
2. Open your account
Once you’ve chosen a broker, opening an account shouldn’t take long. For online brokers, you will just need to provide some basic personal information about yourself and anyone else on the account, such as a spouse or partner. The whole process shouldn’t take more than a few minutes.
3. Fund your account
After opening an account, you will need to put money into it before you place orders and start building your wallet. You can either write a check and mail it to the broker to deposit it into your account, or set up an electronic transfer, which will transfer the money directly from your bank account to the broker.
Once you link your bank account, you can also send money back from your brokerage account to your bank if you ever need it for anything else. Additionally, you can send money from your bank to your brokerage account to add more funds. The money deposited by wire transfer should be available in your brokerage account within a few days.
Who should open a brokerage account
Brokerage accounts allow you to invest in securities like stocks and bonds beyond what you could do with retirement savings plans like 401 (k) s or IRAs. Retirement accounts come with significant tax benefits that you won’t find with brokerage accounts. You will pay taxes on capital gains, interest payments received, and dividends that you generate from your investments in a brokerage account.
For most people, it makes sense to maximize your retirement contributions before turning to a brokerage account, because of the tax implications. However, if you think you need the money before retirement age, a brokerage account can allow you to invest while still being able to withdraw the money without penalty when needed. In general, one should not count on money invested in the stock market for at least five years, as volatility in stock prices makes short-term returns uncertain. But over longer periods, stocks tend to rise.
If you’ve already built up an emergency fund and you’re maximizing your retirement contributions, a brokerage account can be a good way to invest any extra savings you have.
At the end of the line
Brokerage accounts are fairly straightforward to open through online brokers and can be a great way to invest in securities like stocks, bonds, and ETFs beyond what you contribute to retirement accounts. But consider maximizing contributions to tax-advantaged accounts first before turning to brokerage accounts where gains made will be taxed along the way.