You've probably heard of the Federal Deposit Insurance Company (FDIC), which insures certain bank accounts, but did you know your brokerage account is probably also insured? The Securities Investor Protection Corporation (SIPC) insures brokerage accounts up to $500,000 per account, including up to $100,000 in cash. This insures your account against your brokerage going under, or your investments being stolen. However, the SIPC does not protect you against your stocks losing value. Sorry!
Many brokerages even surpass SIPC levels of insurance. There might be a shady brokerage or two out there that somehow isn't insured, though. Ask your brokerage (or prospective brokerage) for clarification on what insurance protection it offers.
Of course, this is just one aspect to investigate when choosing a brokerage. Here are a few others:
Decide how much you'll invest: Some brokers require a minimum initial deposit of $2,000. Others require $500. And some require no minimum, or accept smaller initial deposits to open an IRA.
Consider what you'll be investing in: While we're partial to stocks, you may also want to invest in mutual funds (particularly index funds), options, bonds, or certificates of deposit (CDs). Not every online broker will offer all of these, so make sure you can buy what you want through your broker.
- Compare broker fees and services: Check out and compare how much different brokers will charge in commissions and fees. For a quick comparison of four major brokerages, check out this aptly titled Broker Comparison Table, where you can see how some of our sponsors stack up. But don't simply judge online brokers by how much they charge. Check for various features that might interest you, such as phone trades, research products, local offices, check-writing capabilities, and ATM access.