Should I Really Bank With My Investment Broker?
September 16, 2021
Checking accounts are a commodity these days, given that everyone needs to bank somewhere. Investment firms have caught on to this notion and have started to offer deposit services of their own. But do these accounts really measure up to dedicated checking accounts?
The short answer is no. While you may think a checking account is a checking account no matter which financial institution offers it, that is simply not the case when it comes to deposit accounts at a brokerage firm.
Disadvantages to Checking Accounts From Brokerages
First and foremost, brokerage companies are not banks. While they may offer you a place to park your cash, they simply cannot compete with the full scope of products and services that comes with a genuine banking institution. If you choose to bank with an investment firm, expect limited services: no cash transactions in or out, no lending services, and no standard banking add-ons like mobile banking, people-to-people pay, and bill pay. These convenient services are to be expected from most banks in the modern banking world, and you shouldn’t settle for less.
Many investment firms offer only consumer banking services without options to support trusts, foundations, and small to large businesses. Splitting personal and business banking services brings unneeded challenges when managing cash flow. It can also reduce the pricing and servicing advantages that may be available when banking at a single institution with a well-rounded relationship. Be sure to look for banks that can handle all aspects of your banking needs when selecting your next financial partner.
Reduced Financial Security
Investment institutions are not commonly FDIC member banks — the security of your assets is not protected in the same manner as a traditional bank, leaving you exposed to unnecessary risk. While some firms will offer to sweep your deposit assets into an FDIC-insured account at a reputable banking institution, your assets may still not be protected in the same capacity as a traditional bank account. Sweep accounts are often commingled assets from multiple individuals held in one account. Placement of these assets is not common knowledge, so if you also hold assets at the same bank, you could potentially leave yourself in an uninsured position.
Lastly, these accounts can be expensive, depending on the brokerage firm and the fine print in their agreements. Some checking accounts are simply the cash position in an investment account, making them susceptible to management fees, even if the funds are not invested in the market. These fees, ranging anywhere from 1-3%, will often offset any accrued interest your deposits may have earned.
When selecting your next banking partner, look for a trusted, local, FDIC-insured member bank that can help with all aspects of your deposit portfolio. Our deposit experts will ensure the account structure, products services, and safety of your funds meet your needs. Contact First Western Trust to learn more.