8 Ways To Use Your Brokerage Like a Savings Account

Most people think of brokerage accounts as investment accounts, used to buy and sell stocks, bonds, mutual funds and other traditional investments. But many firms now allow investment accounts to double as checking, savings or short-term cash-management accounts.

By using the same account for all of these functions, you can keep all of your money under one roof, rather than juggling a separate bank relationship as well.

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Key Takeaways

• Many brokerages now double as a bank. Cash management accounts can offer a debit card, direct deposit, bill pay and check-writing alongside your investments, all under one roof.

• Know which safety net applies. A money market fund is a security covered by SIPC up to $500,000, while cash swept to partner banks is FDIC-insured up to $250,000 per bank.

• SIPC covers firm failure, not market losses. Its protection is $500,000 total, including a $250,000 cash sublimit, and kicks in only if the brokerage fails.

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1. Keep Your Cash in a Money Market Fund

Nowadays, most brokerages automatically invest your free cash balances in some type of interest-bearing account, like a money market fund. Money market funds are similar to money market accounts at a bank, but there’s an important difference. 

While money market accounts are FDIC-insured bank deposits, money market funds are investments. While they strive to keep a share price of $1, they don’t offer any guarantees as to their value. However, they are covered by SIPC insurance in the event of firm failure. 

2. Open a Cash Management Account

While there can be some advantages to opening a second bank account for your cash balances, it’s more burdensome. In addition to the paperwork required to open and maintain a second account, you’ll have to deal with transferring money back and forth to your investment account if you need the funds to make a purchase.

Firms like Fidelity offer a dedicated cash management account that functions like a separate checking account, with a debit card, unlimited ATM fee reimbursements worldwide, free bill pay and no minimum balance requirement. For a lot of people, this works as a convenient way to replace a separate checking account entirely. 

3. Set Up Direct Deposit 

Most people use their checking account as a place to deposit their paycheck and pay their bills. Brokerage cash management accounts offer these same features. Provide your payroll department with your firm’s routing number and your specific account number and your paycheck will be directly deposited there just as with any traditional bank account. 

4. Build a Treasury Bill Ladder 

You can buy T-bills directly with your brokerage account, and that can be a great way to park cash you don’t immediately need. If you split your money across staggered maturities, you’ll have money coming due every few weeks that you can use to spend, reinvest or roll into a new Treasury bill.

That way, you’re not locking up the entire amount at one time in a CD, for example. Treasury interest is also exempt from state and local income tax. That’s an advantage that a regular bank savings account can't offer. It’s particularly valuable if you live in a state with a high income tax.  

5. House Your Emergency Fund 

Keeping your emergency fund in a brokerage account allows you to keep your funds secure and help them grow.

6. Automate the Sweep

At many firms, your uninvested cash will automatically sweep into a money market fund or other cash management account. However, you may have to initiate this automatic sweep yourself. You may also have to choose where your cash will go among a variety of funds or investments. It’s important to set up automation, but it’s something you’ll only have to do once.  

7. Open Sub Accounts for Separate Short-Term Savings Goals 

Many brokerages will allow you to open as many sub accounts as you want for your individual savings goals. This can help keep your money dedicated to a specific goal if you’re trying to save for a wedding, a down payment and next year’s taxes all at the same time. 

8. Use Bill Pay and Check-Writing

On top of savings options, many brokerages also offer bill pay and check-writing services. Some even issue old-fashioned paper checks, if you so desire. The all-inclusive nature of these accounts allows you to pay your rent or mortgage and utilities without needing a separate checking account.

When You Shouldn't Use Your Brokerage Account Like a Savings Account

In spite of all of the advantages, this approach isn’t the right move for everyone. What makes a brokerage account convenient for one person can be of no value to another. Here are some reasons that might steer you away: 

• You’re not good at keeping “safe” money separate from your “daily spend” and “investment” funds: If you draw on whatever money you have available to pay bills or make investments, you might want to keep your emergency fund and short-term goal accounts at a different institution. 

• You make a lot of cash deposits or need bank teller services: Most brokerages don't have branches, and you can’t deposit cash using a mobile app. Cash management accounts also have no provisions for safe deposit boxes or other traditional bank services.

• Your broker doesn’t offer significant cash management features: Not every firm offers a debit card, bill pay or ATM reimbursement. If you need those services, check with your brokerage before assuming that it offers the same capabilities of Fidelity's cash management account.

• Your balance sits close to or above the SIPC or FDIC insurance limits: If you have a $1 million account, for example, you might want to consider spreading some of that money across multiple institutions so that it’s completely covered by insurance in the event of firm failure. 

FAQs

Is my brokerage cash management account FDIC-insured?

Technically, no, but most firms find a way around this. Most cash management accounts use partner banks to hold their cash deposits, which affords them the standard $250,000 FDIC insurance protection. 

Can I write checks from a brokerage account like a checking account?

This can vary from firm to firm, but most cash management accounts do offer check-writing capabilities. However, it’s not always available by default, and you might have to request it to be enabled on your specific account. You should also check to see if the account has any restrictions on the number of transactions you can make. 

What's the difference between a sweep account and a money market fund?

A sweep program typically moves cash into FDIC-insured partner banks automatically. A money market fund is technically a security you're purchasing shares of, covered by SIPC rather than FDIC. However, in many cases you can opt for your free cash to be swept into a money market fund. Just be aware of the differences in yield, liquidity and insurance coverage.

Is it safe to keep my emergency fund in a brokerage account?

A brokerage account can be a good place to keep an emergency fund as long as the balance remains under applicable SIPC and/or FDIC-sweep limits. The primary risk to watch out for is the temptation to use that money for investments or withdrawals, as it’s easy to access. 

Will I get taxed differently on interest earned in a brokerage account vs. a bank account?

The IRS taxes interest and money market fund dividends the same whether they are held in a brokerage account or a bank account. The one exception worth knowing is that Treasury bills, which are typically purchased in brokerage accounts instead of bank accounts, are exempt from both state and local tax. 

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Key Terms

• Cash management account — A brokerage-based account that bundles banking features like a debit card, bill pay and direct deposit with your investment account.

• Cash sweep — An automatic program that moves uninvested cash into a money market fund or FDIC-insured partner-bank deposit.

• Money market fund — A low-risk mutual fund treated as a security, covered by SIPC up to $500,000 if the brokerage fails, but not FDIC-insured.

• SIPC protection — Coverage of up to $500,000, including a $250,000 cash sublimit, that applies only when a brokerage firm fails and assets are missing.

• FDIC pass-through insurance — Coverage of cash swept to partner banks, up to $250,000 per depositor, per bank, when program conditions are met.

• Excess-of-SIPC coverage — Supplemental private insurance some firms buy to protect assets beyond the standard SIPC limits.

• Treasury bill (T-bill) — Short-term government debt whose interest is exempt from state and local income tax.

• Subaccount — A separate bucket within a brokerage account used to earmark money for individual short-term goals.

Sources

• SIPC — What SIPC Protects

• SEC / Investor.gov — Cash Sweep Programs for Uninvested Cash

• FINRA — Cash Management and Bank Sweep Programs

• TreasuryDirect — Treasury Bills

Summary generated by AI, verified by MoneyLion editors