What Investment Account Should I Open

Date:

Robinhood: Best For Fractional Investing

How To Open a Fidelity Investment Account (Step-by-Step)
  • Minimum investment: $0, $2k for Robinhood Gold
  • Trade/account management fees: None
  • Investment options: Stocks, ETFs, cryptocurrency
  • Robo-advisor available? No

Ah, Robinhood. Weve all heard of Robinhood, and for good reason, too. Its supremely easy to use, rich with beginner-friendly features, and requires just $1 to get started investing.

One of the best things about Robinhood for new investors, though, is its fractional shares. Traditionally if you wanted to buy a share of, say, Microsoft, youd have to invest a full $270 for one whole share. But with Robinhood, you can simply say I want $50 worth of Microsoft and Robinhood will carve a slice for you.

Despite being known as the platform for newbies, Robinhood still provides some tasty advanced features. Margin trading, market research, and the Robinhood podcast all give fast learners plenty to chew on so they dont feel compelled to move onto a more advanced platform too soon.

E*trade: Best For Options Trading

  • Minimum investment: $0, but account must stay funded to remain open
  • Trade/account management fees: None for trades, 0.30% account management fee for Core Portfolios
  • Investment options: Stocks, options, futures, ETFs, mutual funds, bonds, CDs
  • Robo-advisor available? Yes, through Core Portfolios

Having been in the game since 1982, E*TRADE has a lot to offer the modern intermediate-level investor. The platform is perhaps best known for its wide variety of account types. Those include, but arent limited to:

  • Taxable individual and joint brokerage accounts
  • Traditional, Roth, SEP, SIMPLE and rollover IRAs and Solo 401 plans
  • Custodial accounts, trusts, and Coverdell Education Savings Accounts

And investment options include:

  • Cryptocurrency trusts

E*TRADE also stands out with options trading. Their Power E*TRADE Platform is one of the best in the industry, offering interactive charts, technical pattern recognition, a snapshot analysis enabling you to evaluate risk/reward probabilities, the ability to run what-if scenarios, and a live-action capability where you can scan for unusual options activity, based on above-normal volatility.

Breaking Down Your Choices

Let’s take a look at some of the most common types of retirement accounts and their key features and rules.* No account minimums required when you open an account.2

* The table above is for informational purposes only and does not constitute a full list of available accounts.

** Many companies also sponsor Roth 401 accounts. Unlike the Traditional 401, a Roth 401 account is funded with after-tax income. Qualified withdrawals of contributions and earnings in this account are tax-free.

*** A pre-tax contribution is not taxed when its put into the account, so it’s not counted as part of your taxable income for the year. Uncle Sam allows a certain amount of income to be contributed pre-taxed to qualified retirement plans. This lowers your taxable income and may get you a tax break. After-tax contributions are taxed when they are received, so you will pay additional taxes on your take-home pay when it is contributed.

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Types Of Investment Accounts You Should Know

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The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

If you like having options, youve got plenty when it comes to investment account types. Whatll it be, an IRA? Taxable account? College savings account? Thats one of the first questions financial firms ask when you set up an account.

This guide to the various types of investment accounts will help you find the best one based on your savings goals, eligibility, and who you want to retain ownership of the account .

Types Of Education Savings Accounts

When Should You Open a Health Savings Account?

The main types of education savings accounts are:

  • 529 plan: A state-sponsored investment vehicle that can either be prepaid tuition plans that are usually associated with specific state schools, or education savings plans that can be used within or even outside of the owner’s state of residency.
  • Coverdell Education Savings Account, or ESA: Formerly called “Education IRAs,” the ESA is an investment and savings vehicle that can be applied to qualified education expenses that range from elementary school up through college and extend beyond tuition to expenses such as transportation and equipment as well.

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Here Are Some Of The Best Ways To Invest $:

Open a Roth IRA with Vanguard. The Vanguard Roth IRA offers investors low fees and access to Vanguards broad range of low-cost index funds, including an S& P 500 fund .

Investors who sign up for automatic contributions can set up automatic reallocation from one fund to another every quarter a strategy that will help keep your portfolio balanced over time without requiring much effort on your part.

If you think your income might fluctuate in retirement, consider opening an IRA with TIAA-CREF, which also offers low-fee index funds as well as actively managed funds that may better align with your risk tolerance and goals.

More details on this! 1. Mutual funds If you dont know what mutual funds are or how they work, read our beginners guide here.

If you want to invest in mutual funds but dont know how to find good ones, read our list of the best mutual funds for beginners here.

Mutual fund investing is a great way to get started with investing because there are no transaction fees, and you can purchase any amount of units per month .

You can also choose from a wide variety of mutual funds that invest in different asset classes like stocks, bonds and other securities.

2. Individual stocks If youve never invested before but have some money saved up and would like more control over your portfolio then individual stocks may be right for you!

There are tons of resources out there that can teach you how to analyze stocks and pick good ones so check them out here:

Next Steps To Consider

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Zero account minimums and Zero account fees apply to retail brokerage accounts only. Account minimums may apply to certain account types and/or the purchase of some Fidelity mutual funds that have a minimum investment requirement. If you choose to invest in mutual funds, underlying fund expenses still apply. There may also be commissions, interest charges, and other expenses associated with transacting or holding specific investments , or selecting certain account features or types Additionally, accounts that have been opened through, or are serviced by, an intermediary, or in connection with your workplace benefits, may incur additional fees or restrictions. See for more information and/or the funds prospectus for details.

Target Date Funds are an asset mix of stocks, bonds and other investments that automatically becomes more conservative as the fund approaches its target retirement date and beyond. Principal invested is not guaranteed.

Investing involves risk, including risk of loss.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

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Choose The Right Broker

No matter which type of brokerage account you decide to open for your kids, you’ll need to start by finding a broker that offers custodial accounts. The best investment accounts for kids charge no account fees, and have no minimum initial deposit. This gives your kids the chance to start investing with a small amount of money.

Consider, too, the costs associated with the investments your child plans to choose. For example, for kids who want to practice trading stocks, you should ensure the broker charges low or no trade commissions. If your kids just want their money to grow in a hands-off way, consider looking for brokers with a large selection of low-cost index funds.

If youre looking for a brokerage account to teach your kids about investing, know that many brokers offer educational content, including online investing tutorials and even practice trading accounts.

A Traditional Individual Retirement Account

What Kind of Investment Account Should I Open?
  • Max Contribution : $6,000 + $1,000 for individual
  • Withdrawal Rules : Money withdrawn before age 59.5 has a 10% additional tax
  • Mandatory Withdrawals : Must begin withdrawing by 72 to avoid penalties

A traditional individual retirement account allows you to contribute direct, pre-tax income towards investments that can grow tax-deferred. These accounts use pre-tax income similarly to how corporate 401s work.

When you withdraw , you pay taxes on the money.

Contributions are often tax-deductible based on ones income, tax-filing status, and more factors. When it counts as a tax deduction, the IRS does not apply income tax to those earnings.

These accounts can be opened through a broker or with a financial advisor.

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Why Invest Your Money

Whether you’re saving for retirement, a house, education or just saving for the future, investing may help your money grow. If you keep your money in a savings account, it may not earn enough interest to keep up with inflation over time.

Knowing some investing basics helps to lay the groundwork so you can set your financial goals and decide what types of investments may help you reach them.

Why You Can Trust Bankrate

Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.

Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.

Our investing reporters and editors focus on the points consumers care about most how to get started, the best brokers, types of investment accounts, how to choose investments and more so you can feel confident when investing your money.

Investing disclosure:

The investment information provided in this table is for informational and general educational purposes only and should not be construed as investment or financial advice. Bankrate does not offer advisory or brokerage services, nor does it provide individualized recommendations or personalized investment advice. Investment decisions should be based on an evaluation of your own personal financial situation, needs, risk tolerance and investment objectives. Investing involves risk including the potential loss of principal.

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Coverdell Education Savings Accounts

  • Eligibility: Your modified adjusted gross income must be less than $110,000 per year or $220,000 if filing a joint tax return.
  • Investment options: Determined by the provider but generally include individual stocks, ETFs, and mutual funds.

A Coverdell education savings account is a trust or custodial account set up to save for qualified education expenses for a designated beneficiary. Functionally, it works a lot like a 529 plan with broader investment options.

Notably, it can be used to pay for private elementary, middle, and secondary school expenses in addition to tuition. Like 529 plans, withdrawals used to pay for qualified expenses are tax-free. Unlike 529 plans, Coverdell accounts are not transferable to other family members.

Contributions to Coverdell accounts are not tax-deductible. The maximum amount you can contribute on behalf of one beneficiary is $2,000 per year in 2020 and 2021.

Vanguard: Best For Investors With $50000+

Should I Start a Health Savings Account (HSA)?
  • Minimum investment: $50,000
  • Trade/account management fees: None for trades, $20 annually for brokerage accounts, 0.30% for VPA accounts
  • Investment options: Stocks, bonds, ETFs, mutual funds, CDs
  • Robo-advisor available? Yes, through Vanguard Personal Advisor

You may recognize Vanguard as the purveyors of popular high-cap ETFs like the Vanguard S& P 500 ETF and the Vanguard Total World Stock ETF .

Now, you dont need a Vanguard investment account to invest in these ETFs since theyre available for commission-free trading pretty much anywhere other ETFs are. That being said, if you have a minimum $50,000 to invest, you might seriously want a Vanguard investment account.

Thats because $50k is the minimum deposit needed to qualify for Vanguard Personal Advisor the Rolls-Royce of robo-advisors. Youll get automatic quarterly rebalancing, free annual checkups, and video calls with Vanguards financial advisors to make sure youre on track for your investing goals all for a 0.30% management fee.

The cherry on top? Vanguard insures each of its customers accounts for $500,000.

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The Types Of Funds & Accounts Offered

When deciding on the best investment account to go with, you should also take a look at the types of funds they have as well.

Do they have index funds, mutual funds, ETFs, individual stocks, etc? Additionally, based on your investing goals, do the funds offer the type of diversification you might need?

Typically, you can explore their website and view the prospectus .

This will give you insight and the history of returns, who manages the fund, stocks involved if it is an index or mutual fund, fees, distributions of any dividends, etc.

Additionally, look at the types of accounts you can open.

Like do they offer a brokerage account, individual IRAs, roller overs, solo 401k, annuities, etc. Its okay if you dont understand everything that the company may offer, but its good to know there are tons of options in one place.

Determine Your Risk Tolerance

Heres the million-dollar question: how much risk are you willing to take?

Every type of investment comes with a certain level of risk, which is often linked to the potential return. Generally speaking, the more risk youre willing to take, the greater the return. A few examples:

  • GICs are considered the safest investments in Canada, but the best GIC rates usually range between 1 to 3%, depending on the term.
  • Bonds are considered a low-risk option that helps balance out your portfolio from tumultuous times.
  • Stocks are more volatile, going through bear and bull markets where the market rides a rollercoaster of ups and downs. We saw this most recently during the stock market crash during the COVID crisis. As a result, on average, the stock market returns around 9-10% per year.
  • Cryptocurrency is one of the most volatile investments you can make. Case in point: the value of Bitcoin increased by more than 90% during the COVID-19 crisis. But in May 2021, the Bitcoin price plummeted 40% simply because China decided to crack down on crypto.

Investing is a balancing act: the goal is to build a risk-appropriate portfolio meaning a set of investments that match your risk tolerance. But how do you determine your risk tolerance?

Do some self-reflecting. Do market ups and downs make you feel pukey and panicked? Do you sleep better at night with a bond buffer in your portfolio? Or are you game to go all-in and build a portfolio of 100% stocks? Be realistic!

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Eligibility For Opening An Ira

Traditional IRAs and Roth IRAs have income limits for contributions. For example, for traditional IRA contributions to be fully deductible, the income limit for a single person is $68,000, whereas for a married couple the income limit is 109,000 or less to get the full deduction. Income limits for Roth IRAs are $129,000 for single filers and $204,000 for married filing jointly.

Keep in mind that certain qualifying and reduced contributions may be made at income levels above these limits, at phase out levels, where reduced deductibility or contribution amounts apply.

A SEP IRA can also be established through any financial institution that offers IRAs. However, to establish a SEP IRA, individuals must be a participant in an employer-sponsored SEP plan.

More About The Best Stock Brokers For Beginners

How to Open a Kids’ Investment Account (Fidelity Custodial Account Explained)

The star ratings above represent the provider’s overall score across various categories. In this section, we’ve included more detail about how we rated these stock brokers specifically for their customer support options, which are key for many new investors. Our overall customer support rating below takes into account website transparency , educational resources, customer service availability and the cost of broker-assisted trading. Here’s how each provider stacks up.

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How Is A Brokerage Account Different From Other Accounts

Brokerage account is a broad term that covers a few types of accounts. For example, a standard brokerage account offers maximum flexibility and access to a variety of investments. Learn more about how a standard brokerage account compares to other account types with our account comparison table below.

Retirement Account Roth Ira

A Roth IRA differs from a traditional IRA in one key respect. Instead of contributing pre-tax dollars and paying income tax once you retire, you contribute after-tax dollars to your Roth IRA, but can then take tax-free income in retirement. This means you wont be able to deduct your contributions from your taxable income.

While you miss out on a tax break during your working years, there is a big advantage to a Roth IRA. Since your contributions will appreciate and earn interest in your IRA, you can expect to have more in your account once you retire than just the sum of your contributions. Thats the whole idea of investing in the first place! So when the time comes to start taking income from your Roth IRA, you dont just get to take out your original contributions out tax-free you also wont have to pay taxes on all the extra money you earned.

That gives a Roth IRA a big edge over a traditional IRA, where every cent you withdraw is subject to income taxes. This also means that a Roth IRA is at its most valuable when you open it at a young age. If you allow more time for the interest to compound, youll earn more tax-free money. Plus, if you contribute when your salary is lower, it means the tax you paid on those contributions was lower.

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