What is a Brokerage Account? Types, Costs, and How to Open One

A brokerage account is a taxable investment account that lets you buy and sell securities like stocks, bonds, mutual funds, and exchange-traded funds (ETFs) through a licensed brokerage firm. Most major U.S. brokerages offer commission-free stock and ETF trading. If the brokerage fails, customer accounts are protected up to $500,000 (including up to $250,000 in cash) by the Securities Investor Protection Corporation (SIPC). SIPC does not protect against market losses.

That's the short answer. For the slightly longer one, which is where most of the practical decisions live, is about what kind of brokerage account is right for you, how it compares to a retirement account, and what to actually do to open one. According to Gallup, about 62% of Americans own stock in some form, most often through an investment account like this one. Here's a clear walk-through.

How a brokerage account works

When you open a brokerage account, you're opening a financial account at a brokerage firm, a company that's licensed to buy and sell securities on your behalf. You deposit money into the account, and then you use that money to buy investments. The brokerage holds your investments and executes trades when you place an order, either through the firm's mobile app, website, or a financial advisor.

The brokerage doesn't own the investments in your account. You do. The firm is acting as an intermediary between you and the markets, and your investments stay yours even if the brokerage runs into trouble (more on that in the safety section below).

A few things have shifted about how brokerage accounts work in the past few years:

• Commission-free trading is now the standard. Charles Schwab eliminated stock and ETF trading commissions on October 1, 2019, and Fidelity, TD Ameritrade, E*TRADE, Robinhood, and Interactive Brokers all followed within days. Today, zero-commission trading on stocks and ETFs is the industry standard at major U.S. retail brokerages. Some firms still charge for options, certain mutual funds, or specialty products, but the days of paying $5 or $10 per trade to buy a share of Apple are largely over.
• Fractional shares are nearly universal. Many brokerages, including Acorns, now let you buy a fraction of a share rather than a whole one. If a single share of a stock costs more than you want to spend at once, fractional shares let you start with as little as $5.
• Cash management features are built in. Most modern brokerages let you transfer money in and out of your account quickly, link a debit card, and earn interest on uninvested cash. Some, like Acorns, bundle a brokerage account with a checking-style account so the whole thing lives in one app.
   

Types of brokerages

There are three main flavors of brokerage today, and they sit on a spectrum from high-touch human advice to low-touch automation.

Full-service brokerages

Full-service brokerages employ human financial advisors who work with you one-on-one to plan, invest, and manage your money. You get personalized advice, financial planning, and sometimes other services like estate and tax help. The trade-off is cost: full-service advisors typically charge somewhere between 0.5% and 1.5% of your account's assets each year. For larger portfolios, that can add up quickly.

Full-service brokerages tend to be a fit for investors who want hands-on professional guidance and who have enough invested for the math to make sense.

Online discount brokerages

Online discount brokerages are self-directed: you pick the investments, you place the trades, you manage the portfolio. The platform handles execution, recordkeeping, and the account infrastructure. Most online brokerages now offer commission-free stock and ETF trading along with research tools, fractional shares, and educational content.

Major U.S. online discount brokerages include Charles Schwab (which completed its integration with TD Ameritrade in 2023), Fidelity Investments, Vanguard, Robinhood, E*TRADE (now part of Morgan Stanley), and Interactive Brokers. Each has its own strengths around research tools, mobile experience, fund availability, and customer service.

Online discount brokerages tend to be a fit for investors who want to make their own decisions and are comfortable doing some learning along the way.

Robo-advisors

A robo-advisor sits in between full-service and self-directed. You answer a few questions about your goals, time horizon, and risk tolerance, and the platform builds you a diversified portfolio of low-cost ETFs. The robo-advisor then automates the things that trip people up the most: rebalancing, reinvesting dividends, and keeping your allocation on track over time.

Robo-advisors usually charge a low subscription charge or a small percentage of assets each year. Acorns Invest, for example, is part of an Acorns subscription that starts at $3/month.

Robo-advisors tend to be a fit for new investors, busy people, and anyone who'd rather have the strategy handled for them.

Brokerage account vs. retirement account

A brokerage account is a taxable investment account with no contribution limits and no restrictions on when you can withdraw. A retirement account like a 401(k) or IRA offers tax advantages but caps how much you can contribute each year and restricts withdrawals before age 59½.

That's the headline difference. Here's how it plays out in practice:

Brokerage accounts (also called individual or taxable accounts) are flexible. You can put as much money in as you want, take money out whenever you want, and use the money for anything. The trade-off is taxes: you'll generally owe taxes on any gains, interest, and dividends each year.

Retirement accounts come with tax breaks. With a Traditional IRA or 401(k), your contributions are tax-deductible up front and your investments have tax-deferred growth potential. With a Roth IRA or Roth 401(k), you contribute after-tax dollars, and qualified withdrawals offer tax-free growth potential. The catch: there are annual contribution limits set by the IRS, and taking money out before age 59½ usually triggers a 10% early-withdrawal penalty plus regular income taxes.

Many investors use both. They open a retirement account for long-term growth potential and a brokerage account for everything else, like saving for a house down payment, a sabbatical, or a big purchase a few years out.

Common brokerage account types

The brokerage account you open can be structured a few different ways depending on who the money is for:

Individual brokerage account. The standard option. You own the account, fund the account, and make all the decisions. Acorns Invest is an example of an individual brokerage account paired with a robo-advisor.

Joint brokerage account. Two people, usually spouses or partners, share ownership of the account. Most joint accounts are set up so either owner can trade and withdraw, and so the account passes to the surviving owner if one dies.

Custodial accounts (UGMA/UTMA). A custodial account is an investment account opened in an adult's name on behalf of a child. The adult manages the account and investments until the child reaches the age of transfer (18 or 21, depending on the state), at which point the account transfers to them. Acorns Early Invest is a UGMA/UTMA custodial account that lets parents, grandparents, and friends invest for the kids in their life.

Is your money safe in a brokerage account?

Money in a brokerage account isn't insured by the FDIC, which only covers bank deposits. Brokerage accounts have their own safety net.

SIPC protection

The Securities Investor Protection Corporation (SIPC) is a nonprofit, congressionally chartered body that protects customers of failed brokerage firms. If a SIPC member brokerage goes under and customer assets go missing, SIPC steps in to make customers whole, up to $500,000 per customer per brokerage, including up to $250,000 for cash.

There are two important caveats:

• SIPC does NOT cover market losses. If your stocks drop in value, that's market risk, and no protection against it.
• SIPC only kicks in if the brokerage fails. In a normal market, your account is just your account.
   

Acorns Securities, LLC, the broker-dealer that provides brokerage services for Acorns Invest, Acorns Later, and Acorns Early Invest, is a member of FINRA and SIPC.

FINRA and the SEC

The SEC (U.S. Securities and Exchange Commission) is the federal regulator that oversees the securities industry. FINRA (the Financial Industry Regulatory Authority) is a self-regulatory body that sits between brokerages and the SEC, writing the rules brokerages follow and policing their compliance.

Before you open a brokerage account, you can look up any U.S. brokerage on FINRA's BrokerCheck to see its registration status, regulatory history, and any complaints on file. SEC's Investor.gov is another solid free resource for basic investor education.

Taxes on brokerage accounts

Because brokerage accounts are taxable, it helps to understand how the IRS treats investment gains.

• Short-term capital gains apply to investments sold within a year of buying them. They're taxed at the investor's ordinary income tax rate, which can be higher.
• Long-term capital gains apply to investments held for more than a year. They're taxed at preferential rates (0%, 15%, or 20% depending on the investor's income), which is one big reason long-term investing tends to be more tax-efficient.
• Dividends received from stocks and funds are also taxable each year, at either ordinary or qualified dividend rates.
• Tax-loss harvesting is a strategy where investments are sold at a loss to offset gains elsewhere in one’s portfolio. Some brokerages and robo-advisors offer this as a built-in feature.
   

This is a quick overview, not tax advice. If your situation is complex, it's worth talking to a tax professional.

How to open a brokerage account

Opening a brokerage account is usually a 10 to 15 minute process. Most online brokerages and robo-advisors let you do it entirely from your phone. Here's the general flow:

1. Choose the type of brokerage. Full-service, online discount, or robo-advisor. Match the type to how hands-on you want to be and how much you'd like to pay.

2. Compare a few providers. Look at the subscription charge or management fee, the minimum to open, the available investments (do they offer ETFs, mutual funds, fractional shares?), the mobile app, and customer support. FINRA's BrokerCheck is a free place to check a broker's regulatory record.

3. Apply for the account. You'll need basic personal info, such as name, date of birth, Social Security number, address, and employment details. The brokerage uses this to verify your identity (a federal requirement) and to handle tax reporting.

4. Fund the account. Most brokerages let you link a bank account and transfer in funds electronically. Many require no account minimum to open, but you'll need at least a few dollars to actually start buying investments. Acorns Invest, for example, requires just $5 to start.

5. Pick your investments (or let the brokerage pick). With a self-directed account, you'll choose the stocks, ETFs, or funds yourself. With a robo-advisor, the platform builds a diversified portfolio for you based on a quick risk questionnaire and manages it from there.

How Acorns Invest works as a brokerage account

Acorns Invest is a robo-advisor brokerage account. You answer a few questions about your goals and risk tolerance, and Acorns builds you a diversified portfolio of low-cost ETFs. Round-Ups® round each card purchase up to the next dollar and automatically invest the spare change. You can also set Recurring Investments, like $5 a day or $25 a week. The portfolio rebalances automatically over time.

A few things to know:

• $5 minimum to start investing, and no account minimum to open.
• Acorns Bronze starts at $3/month for an Acorns Invest brokerage account, an Acorns Later retirement account, and other tools.
• Brokerage services are provided by Acorns Securities, LLC, an SEC-registered broker-dealer and member of FINRA and SIPC.
   

Ready to start? Open a brokerage account with Acorns Invest in minutes, or read up next on how robo-advisors work if you'd like a deeper look at how managed portfolios fit into a long-term investing plan.

Frequently asked questions

What is a brokerage account in simple terms?

A brokerage account is a taxable investment account that lets you buy and sell investments like stocks, bonds, mutual funds, and ETFs through a licensed brokerage firm. Unlike a bank account, money in a brokerage account is used to buy securities rather than earn interest.

How much money do I need to open a brokerage account?

Most major U.S. brokerages have no account minimum to open, and you'll typically need only a few dollars to actually start buying investments. Acorns Invest, for example, has no minimum to open an account and requires just $5 to start investing.

Is a brokerage account safe?

Customer accounts at a SIPC member brokerage are protected up to $500,000, including up to $250,000 in cash, if the brokerage fails. SIPC does not protect against market losses or bad investment decisions. You can verify a brokerage's registration and regulatory history on FINRA's BrokerCheck.

What's the difference between a brokerage account and a retirement account?

A brokerage account is a taxable investment account with no contribution limits and no restrictions on when you can withdraw. A retirement account like a 401(k) or IRA offers tax advantages but caps how much you can contribute each year and restricts withdrawals before age 59½.

Can you lose money in a brokerage account?

Yes. The investments in a brokerage account can rise or fall in value, and there's no insurance against market losses. Diversifying your portfolio across many investments, investing for the long term, and avoiding emotional reactions to short-term market moves are some of the ways investors try to manage that risk.