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A brokerage account can be a great place to grow your money outside of a designated retirement account. While you won't get the tax benefits of a 401(k) or individual retirement account (IRA), you will have more flexibility when it comes to making contributions and accessing your cash.
How much you'll need to open a brokerage account depends on the brokerage firm. Each has its own minimum investment requirements; some have no minimums at all, but you might run into brokerage fees. You'll also owe taxes if you sell your investments for more than you paid for them.
What Is a Brokerage Account?
A brokerage account is an investment account you can open and fund on your own. Unlike retirement accounts, which have contribution limits and early withdrawal penalties, brokerage accounts are less restrictive. You can invest as much as you want and tap your money at any time. Brokerage accounts allow you to invest in:
- Stocks
- Bonds
- Mutual funds
- Exchange-traded funds (ETFs)
- Brokered certificates of deposit (CDs)
- Money market funds
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How Much Do I Need to Open a Brokerage Account?
Initial investment minimums vary from one brokerage firm to the next. T. Rowe Price, for example, requires a $2,500 minimum investment. Other brokerages have no minimum at all. That means it's possible to start investing with whatever you have—whether that's $5 or $500.
However, investment minimums may be different for margin accounts. These accounts allow you to borrow money from the brokerage to buy securities. Your portfolio assets will then be used as collateral. Some brokerages require $2,000 to trade on margin. Others maintain a minimum and also require you to have 50% of the purchase amount in your account. For example, if you wanted to buy $5,000 worth of stock on margin, you'd need to deposit $2,500 into your account first.
Learn more >> How Much Money Do You Need to Start Investing?
What Else You Need to Open a Brokerage Account
Apart from your initial investment, you'll likely need the following information to open a brokerage account:
- Government-issued photo ID
- Contact information
- Social Security number
- Date of birth
- Employment information
- Income information, including your net worth
To help you get the most out of your new account, your brokerage might ask about your investment timeline and risk tolerance. These details can help them provide relevant resources, guidance and account services.
How to Choose a Brokerage Account
Begin by asking yourself how involved you want to be in making trades. Do you prefer to make investment decisions on your own, or would you rather have a broker manage your account for you? There are three main types of brokerage accounts to consider:
| Types of Brokerage Accounts | ||
|---|---|---|
| How It Works | How Much It Costs | |
| Full-service brokerage | A full-service broker often provides personalized investment advice. They can guide your strategy, manage your portfolio and make trades on your behalf. | They generally charge an annual fee that's equal to a percentage of your portfolio's value. That can range anywhere from 0.20% to 1.5%. Some full-service brokerages charge a flat monthly fee. |
| Discount brokerage | You can use an online brokerage platform to buy and sell securities on your own. Many provide investment resources, but you shouldn't expect hands-on guidance or individualized advice. | They usually don't charge annual fees, but you might pay a per-trade commission. That can range anywhere from $5 to $33. |
| Robo-advisor | You provide basic financial information, along with your age and risk tolerance. The platform automatically churns out investment suggestions. A robo-advisor can also manage your account and rebalance your portfolio as necessary. | They typically charge an annual fee equal to 0% to 0.35% of your balance. |
Learn more >> How to Choose the Best Online Broker for You
How to Open a Brokerage Account
When you feel ready to move forward, you can choose a provider and open your brokerage account. Here's a step-by-step guide to help you do just that:
- Choose an account type. Review the chart above and decide which type of brokerage account makes the most sense for you. This will depend on whether you're an active investor or prefer a more hands-off approach.
- Decide on a brokerage. When comparing brokerages, look at minimum initial investments, account maintenance fees, trading commissions and other costs. Also clarify if your uninvested cash will remain in the account, or be swept into other investments or an external bank account.
- Open and fund your account. This shouldn't take long and can usually be done online. You'll link an external bank account you can use to make your initial investment and add funds as needed.
Frequently Asked Questions
It's certainly possible to open a brokerage account with $100 or less. There are brokerage firms that have low (or no) minimum initial investments. It's wise to shop around and compare account minimums and fees before choosing a brokerage.
You must be 18 or older to open a brokerage account, but you can consider a custodial account if you have a child who wants to learn how to invest. The adult manages the account, but the child technically owns the assets. The minor will take control of the account when they come of age.
Investing a small amount can be better than nothing at all, especially if you have access to a workplace retirement plan—like a 401(k) that offers an employer match. You can also invest in a brokerage account that doesn't have a minimum initial investment requirement. Consider automating your contributions and increasing the amount whenever possible. Just remember that account fees and capital gains tax can diminish your returns.
The Bottom Line
A brokerage account can help you grow your money (and reach your financial goals) a little faster. And many brokerages don't have a minimum initial investment. Consider your goals, timeline, risk tolerance and investment style—then choose the type of brokerage account that best supports those things. From there, you can compare brokerages and open your account.