What is a brokerage account?

A brokerage account is an investment account held at a licensed brokerage firm. An investor deposits funds into their brokerage account and the brokerage firm transacts orders for investments such as stocks, bonds, mutual funds, and exchange-traded-funds (ETFs) on their behalf.

What is the difference between a brokerage account and an IRA?

Brokerage accounts are also called taxable accounts, because investment income within a brokerage account is subject to capital gains taxes. Retirement accounts (such as IRAs) have a different set of tax and withdrawal rules. They may be better for retirement savings and investing.

What is the difference between a cash management and brokerage account?

Even though cash management and brokerage accounts are both offered by brokerages, their functions are very different. CMAs — which behave similarly to bank accounts — allow customers to park their money and earn a set interest rate, often with the ability to make purchases with a debit card.

What are the disadvantages of a brokerage account?

In the toss-up between a traditional IRA vs. brokerage account, the biggest disadvantage is that a brokerage account is not tax-advantaged. Since it's a taxable account, you'll have to pay taxes on earnings in your account, including capital gains and dividends. Capital gains taxes kick in when you sell investments at a profit.