The pros and cons of brokerage checking accounts

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Online brokerages are primarily meant for buying and selling stocks and other types of investments, but they can also be a good option to consider for your checking account.

Some online brokerages offer checking accounts that come with free checks, mobile banking, online bill pay or unlimited ATM access with fee reimbursement.

What is a brokerage checking account?

A brokerage checking account is a checking account offered by a brokerage. Many brokerages offer these accounts and they generally sweep your funds into banks that are insured by the Federal Deposit Insurance Corp. (FDIC).

Brokerage checking accounts have features similar to checking accounts at a bank, but they might have additional benefits that a standard checking account may not offer, such as:

• Reimbursement of ATM withdrawal fees
• No foreign transaction fees
• Free checks

Your checking account at the FDIC-member bank in town has a standard deposit insurance limit of $250,000 per depositor, per FDIC-insured bank, per ownership category. Options such as adding another depositor to an individual account can increase your FDIC insurance coverage.

However, some brokerage checking accounts make it even easier to get additional FDIC coverage — especially if you’re the only one listed on the checking account — by sweeping your uninvested cash balance into other FDIC-member banks. Make sure you understand where your money is being funneled and how it’s insured.

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?

A brokerage checking account can be a great way to save on fees. But sometimes it’s smarter to keep your checking account and brokerage account separate, says Timothy Kenney, certified financial planner at Seawise Financial in Cardiff, California.

“This is especially true for people that like to trade stocks,” Kenney says. “When you have three to six months in a savings account at the bank for an emergency fund, it can be easier to mentally compartmentalize that as an emergency fund and you can ignore it. If that three to six months savings is sitting in a brokerage account and you’ve had your eye on Tesla stock, it can be tempting to use it for something it wasn’t intended for.”

Those looking to use a brokerage checking account to earn a high yield on their savings might find a savings account or a money market account to be a better option. For longer-term savings, a CD could also earn you a higher yield.

“It doesn’t pay to let money pile up in a checking account,” says Greg McBride, CFA, Bankrate chief financial analyst. “There are better yields to be had by deploying your cash more efficiently in other savings accounts and investment products. The appeal of a checking account is convenience, and particularly if that can be had without any balance requirements or ongoing fees.”

How to choose a brokerage checking account

Several factors should be taken into consideration when comparing brokerage checking accounts.

• Fees: The absence of monthly fees should be at the top of any consumer’s list of checking account must-haves. Free checks and a debit card are also common conveniences.
• Interest rates: Some brokerage accounts offer interest on checking account balances. Compare rates to see which account can offer the best return.
• Investment integration: Your ability to buy and sell stocks directly from your brokerage checking account will vary by brokerage. For instance, if you open a Schwab Bank high-yield investor checking account, a brokerage account is automatically opened with it. The two are linked, but you’re not actually trading out of the checking account.With the Fidelity cash management account, you can trade and conduct bank transactions from this same account.
• ATM access and network: Check the size of the ATM network and whether there are fees associated with using out-of-network ATMs. A larger network means it’s easier access to your money without incurring charges.
• Mobile and online banking: Look for features such as mobile deposits, online bill pay and real-time account management. These features can provide convenience and control over your finances.
• Security features: Look for accounts that offer robust security measures such as two-factor authentication, fraud monitoring and FDIC insurance.

Having your checking under the same roof as your assets is convenient, says McBride. The sweep accounts let you quickly invest your money rather than transferring it.

But there are caveats. If having a small bankroll means your brokerage checking account isn’t free, shop around. Casting a wider net to cover credit union, online bank and community bank accounts makes more sense, McBride says.

Comparing 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.

— Bankrate’s Sheiresa McRae Ngo contributed to an update of this story.