-Matthew P. Jones, Ph.D.
Choosing how to manage your wealth starts with understanding the key differences between a bank savings account and an individual brokerage account.
An FDIC-insured bank savings account is designed to keep your cash secure. While you can earn some interest—especially by placing funds in a Certificate of Deposit (CD)—these accounts generally offer low returns and impose penalties for early withdrawals.
In contrast, an SIPC-insured individual brokerage account allows you to deposit cash just like a savings account but also provides access to a wide range of investment options, including stocks, bonds, options, futures, and forex.
If your goal is to achieve a higher return on investment (ROI) than a typical savings account offers, a brokerage account may be a better fit. However, with the potential for higher returns comes increased risk. Understanding this risk is essential when shaping your financial future. An investment advisor can help assess your financial goals, risk tolerance, and time horizon to determine the most suitable investment strategy—one that likely offers greater growth potential than a bank savings account.
The term “individual” brokerage account distinguishes it from retirement accounts such as Traditional IRAs or Roth IRAs. With an individual brokerage account, you invest using post-tax dollars, and your advisor manages these funds by investing in various securities. Any profits you take are subject to capital gains tax, and as with any investment, there is always a risk of loss.
The table below provides a general comparison of these two account types. After reviewing it, feel free to reach out with any questions or if you’d like to further explore if an individual brokerage account is right for you.
Table: Comparing the Features of a Bank Savings Account and an Individual Brokerage Account
| Feature | Savings Account (FDIC Bank) | Interactive Brokers (IBKR) Individual Account |
|---|---|---|
| Purpose | Securely store cash & earn interest | Invest & trade securities (stocks, options, etc.) |
| Insurance & Protection | FDIC-insured up to $250,000 per depositor, per bank | SIPC-insured up to $500,000 ($250,000 for cash); does not protect against market losses |
| Risk Exposure | Low-to-no market risk, but subject to inflation erosion | Exposed to market risks—investments can fluctuate in value |
| Interest Rates & Returns | Low interest (0.5%-5% annualized) | Higher interest on idle cash (above a certain threshold) & potentially high investment returns |
| Liquidity & Access | Funds are easily accessible (liquid), but may have withdrawal limits/penalties (e.g., 6 transfers/month) | Withdrawals take 1-3 business days, and investments must be sold first (liquidation) |
| Market Exposure | No exposure—funds remain in cash | Fully exposed—securities can gain or lose value |
| Borrowing & Margin | No borrowing or margin trading | Margin trading available, allowing borrowing against investments |
| Best For | Low-risk saving, short-term cash storage | Investing & trading for higher potential returns |