You probably have noticed that many brokerage houses are expanding into areas other than investments. This is a natural expansion for many brokers as money and banking become more virtual, and the new revenue streams help to offset the discounted prices for trades. You’re already invested with your broker, should you use him for your banking, too?

Brokerage Banking

The kind of banking offered by brokers is a bit different from traditional banks. It is more akin to online banking, but with a twist. Brokers offering banking services will allow you to write checks from your account – not your long-term investments, but a new checking account you’ll open with the company.

You’ll also get a debit card to use to access your funds in stores and withdraw cash from ATMs. It is also possible that the checking account will be a money market account which would offer you a higher rate of interest on your money than a traditional bank’s checking account. You may be limited to the amount of checks that are handled without a fee but the increased interest rate on these accounts may well offset any incremental charges.

A brokerage is already in the business of savings, so savings vehicles are a given – although minimum investments may be high. You may also be able to borrow against your holdings, but this is different than a traditional loan. If the value of your portfolio dips with a dropping stock market, you may be asked to sell shares or pay cash to make up any difference between what you have borrowed and the current value of your holdings. For this reason, it’s always wise to borrow against your holdings sparingly and limit funds to 10-15% of your total.

Another appealing aspect of banking with your broker is the simplicity of having all of your money in one place. All of your accounts are easily accessible and paper statements are reduced. If your broker keeps records online, having all of your information in one place is especially useful at tax time.

Drawbacks of Banking with your Broker

Brokerage banking is still in its infancy, and there are certainly some areas where the systems need to improve.

Most brokers don’t have ATMs which means you’ll be charged a hefty fee for using another bank’s ATM. Your own broker may also charge a fee despite the fact that you had no other option.

There are no branches. While there may be local offices of company brokers, those individuals aren’t waiting on you to drive by with a few checks to cash. You’ll also be out of luck if you need a cashier’s check or money order. Limited services in this area are hard to avoid.

Your broker was generally not be able to accept a third party check. So long as you are only depositing Social Security and paychecks this won’t be an issue, but when it comes time to deposit your birthday checks, you may need an alternative. Many brokers are changing this process and can handle most deposit types.

Automatic bill pay may not be available through the broker. If it is available, it may not be fully integrated online and you may have to pay bills using a touchtone phone. The service may also charge you a fee. Study the terms and you may want to use more than one account for electronic bill pay by transferring funds once a month from the high yield account to a lower interest bearing checking account that features electronic bill payment.

Canceled checks may not be returned, but you will most likely be given a carbon checkbook to help you keep track of spending and have copies of your checks for documentation purposes.

Minimums and fees may be challenging to understand. With brokers, your minimum balance may include both your checking and your investments. When these fall below a certain limit, you’ll most likely have to pay a fee. But not only will the fee vary, the minimum balance may be hard to track as the value of your portfolio is constantly fluctuating. The minimums can also be set very high to avoid fees. For example, one broker offering banking service has a minimum balance requirement of $100,000 to avoid paying fees for ATMs.

Compare the rates posted and the services provided. Look for the attributes of an account that best match your spending and investing profile. With a little research, you can maximize the benefits of these accounts and earn more money over time.

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