4 Tips for Opening Your First Brokerage Account
The money you have sitting in a savings account may not grow much. That's because savings accounts don't always pay the most interest. On the other hand, if you were to invest the money you don't need for emergencies or near-term goals, you'll have an opportunity to grow it into a much larger sum.
If you've never used a brokerage account before, you may be overwhelmed at the choices you have. Here are four tips to consider when making your decision.
1. Figure out what you want to invest in
Deciding what assets you'd like to own will help you find the right brokerage. Some brokerage accounts, for example, don't allow you to buy cryptocurrency . If that's something you're interested in putting money into, then you'll want to find an account that allows for that. Otherwise, if you're sure you'll be sticking to stocks, bonds, and mutual funds, it may not matter that a given brokerage doesn't offer crypto.
2. Figure out what you want to invest for
If you're investing money you want access to without restriction, then it pays to put your cash into a traditional brokerage account. But if your investment goal is to build a nest egg for retirement, then you may want to open an IRA .
IRAs come in two varieties -- traditional and Roth. Both choices come with their own tax breaks. Traditional IRAs let you make contributions with tax-free dollars so if you put $5,000 into one, that's $5,000 of earnings the IRS possibly won't tax you on, depending on your income .
Meanwhile Roth IRAs allow for tax-free investment gains and withdrawals. Both accounts, however, require you to leave your money untapped until age 59 1/2, so if you think you'll want the option to cash out your holdings sooner, then an IRA may not be the right choice.
3. Figure out how much you have to invest
Many brokerages don't impose minimum balance requirements, but some charge a fee if your balance gets too low. Of course, you can always avoid those brokerages altogether, but some may offer other benefits that may make them worthwhile. Figure out how much money you have to open a brokerage account and how much you intend to keep putting into that account.
4. Pay attention to fees -- and avoid as many as possible
Some brokerage accounts charge a fee every time you make a trade. For the most part, these are accounts you should try to avoid, because those fees could add up and eat away at your returns. There are so many options today for commission-free trading, it rarely makes sense to let yourself get charged in that area.
That said, there are other fees some brokerages charge -- like inactivity fees for letting your account sit idle for too long. Read up on different fees and compare your choices.
Opening your first brokerage account doesn't have to be a daunting task. Use these four tips to make the process smoother so you can kick off your investing career.Top credit card wipes out interest
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