Even if we don’t plan to invest we should have one. We’ll talk about why in a sec.
But first…
A brokerage account is a taxable account in which we can hold investments. We can get one for free from Fidelity, Vanguard and Schwab. We can get them other places too, but I’d recommend sticking with the big 3.
I say we can hold investments because we don’t have to.
I have my brokerage account at Fidelity Investments so I’ll talk about my Fidelity account. Vanguard and Schwab are very similar, but when we choose a platform like Robinhood, we may give up some features.
Opening an Account
This takes about 5 minutes.
It’s right on the main page. There’s a button that says open an account.
and we’ll get a bunch of choices
Cash Account
Before we jump into brokerage accounts. Let’s talk about why we might want a cash account to go with it.
Many of us have a bank account with one of the big banks like Bank of America. We can go to their branches, we can deposit our check, we can use the ATM…
A quick look at Bank of America’s site shows me that I can open up a savings account with a low monthly fee and I can get somewhere around 0.01% interest.
The Fidelity cash account has no monthly fee. I can choose FDIC insured banks as my default and I’ll get about 1.84% interest – better than 0.01% or I can choose a safe but not FDIC insured money market fund that gets 3.29%.
These rates will vary but they are a whole lot better than we’ll get at a bank.
I have an ATM card for my Fidelity cash account. I can use it at any ATM on the planet. I’ll be charged a fee. But Fidelity will credit me the full amount of all fees.
I have access to Fidelity Bill Pay. I can enter the payee info for anyone I send a check to. My buddy Fred, or the electric company…anyone. I can go online and make a payment and Fidelity will write the check, address the envelope, stamp it and mail it. For Free!!!
I can also transfer online between my Fidelity Cash account and any financial institution. Also free. I can direct deposit all, or a portion of my paycheck.
We should all have this cash account.
Brokerage Account
Along with my Cash Management account, I set up a brokerage account. It’s also free.
In my brokerage account I invest.
I can buy stocks, bonds, mutual funds, ETFs, CDs, and Treasuries.
Setting up the account takes another 5 minutes. We can then transfer in some money from either an external account or from our cash account and we’re ready to start investing.
Most trades are free.
Why Do I Need One?
It should be somewhat obvious by now.
I used to mail checks each month to the electric company, to my credit card issuers, to my mortgage company. I’d write a check and send it. Now I do it online. I don’t buy stamps and I have a record of everything I’ve sent.
I used my ATM card in Grand Cayman this winter. The ATM asked if I’d accept a $5 fee. I gladly hit accept knowing that Fidelity would put $5 back in my account before I returned home.
Investing
But this is the biggee.
We need to invest.
In the old days, when most folks had a pension, we didn’t have to worry about saving for our retirement years.
Pensions have gone the way of the dinosaur. So it’s up to us.
Saving alone won’t do it. If we’ve got a 401k, that’s a great start. A brokerage account is a nice addition.
And they’re not just for the rich.
If I’ve got a spare $5, I can become a shareholder of Amazon.
The price per share of Amazon is $263.99. So for $5, I’ll get 0.01894 shares of Amazon. Not a lot but it’s something.
If I’m not ready for stocks, I could also buy a CD.
Or a nice low-cost S&P 500 fund.
Information
And whether it’s Stocks, Bonds, CDs, Mutual Funds or ETFs that we’re interested in, by opening a brokerage account, we’re given access to a mountain of facts, figures, educational information and tools to help us manage our financial lives.
Account Aggregation
One of my favorite tools is Fidelity Fullview. It’s an account aggregator.
In Fidelity Fullview, I can click add an account. I then log in to my credit card accounts, my mortgage account, any other loan accounts I may have at other external financial institutions, and Fullview then pulls in all transactions from those accounts.
I can go to one page and see all my transactions.
I have 4 credit cards. I can see all the transactions together so I can easily track my spending.
This is free too.
Wrap Up
So yes, we all need an account with a broker like Fidelity, Vanguard or Schwab.
We’ll get a cash management account with rates far better than most local banks and we’ll get some nice additional features.
Our brokerage account will let us start to invest. We can start with as little as $1.
And, as an account owner, we’ll get access to a wealth of information and tools to help us learn and make better financial decisions.
And best of all, it’s free.