Whether you’re new to investing or looking to optimize your portfolio, choosing the right investment account is key to reaching your financial goals. From flexible brokerage accounts to tax-advantaged retirement plans, each option serves a specific purpose, depending on your timeline and risk tolerance.
This guide breaks down popular investment accounts — like robo-advisors, custodial accounts and CDs — to help you decide which one fits your needs.
Brokerage accounts
Brokerage accounts are well-suited for those looking to build diversified portfolios, whether for short-term trading or long-term wealth growth. Unlike tax-advantaged accounts, brokerage accounts have no restrictions on how much money you can deposit or when you can withdraw it, allowing you to maintain full control of your investments at all times.
This freedom, however, comes with added responsibility — managing a brokerage account often requires time and effort, as you’ll need to research and choose investments, monitor performance and rebalance your portfolio as needed.
Additionally, profits from brokerage accounts are subject to taxes — investors should also be aware of fees, such as trading commissions, account maintenance charges or advisory fees, which can add up over time.
Brokerage accounts are best used when seeking broad flexibility in investment options or when targeting financial goals that don’t align with the contribution limits or restrictions of retirement-specific accounts.
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
Other fees, such as exchange fees, may apply. Please view our fee disclosure to view a full listing of fees.
Investing in alternative investments and/or strategies may not be suitable for all investors and involves unique risks, including the risk of loss. An investor should consider their individual circumstances and any investment information, such as a prospectus, prior to investing. Interval Funds are illiquid instruments, the ability to trade on your timeline may be restricted. Brokerage and Active investing products offered through SoFi Securities LLC, Member FINRA(www.finra.org) /SIPC(www.sipc.org).
There are limitations with fractional shares to consider before investing. During market hours fractional share orders are transmitted immediately in the order received. There may be system delays from receipt of your order until execution and market conditions may adversely impact execution prices. Outside of market hours orders are received on a not held basis and will be aggregated for each security then executed in the morning trade window of the next business day at market open. Share will be delivered at an average price received for executing the securities through a single batched order. Fractional shares may not be transferred to another firm. Fractional shares will be sold when a transfer or closure request is initiated. Please consider that selling securities is a taxable event.
Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire investment Before trading options please review the Characteristics and Risks of Standardized Options
Advisory services are offered by SoFi Wealth LLC, an SEC-registered investment adviser.
Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see https://www.sofi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information
Probability of Member receiving $1,000 is a probability of 0.028%
SoFi Plus members can schedule an unlimited number of appointments with a financial planner during periods in which the SoFi Plus member meets the eligibility criteria set forth in section 10(a) of the SoFi Plus Terms and Conditions. SoFi members who are not members of SoFi Plus can schedule one (1) appointment with a financial planner. The ability to schedule appointments is subject to financial planner availability. SoFi reserves the right to change or terminate this benefit at any time with or without notice. Advisory services are offered by SoFi Wealth LLC, an SEC-registered investment adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at www.adviserinfo.sec.gov.
Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.
unlimited 1% match on recurring deposits to a SoFi InvestⓇ account, paid in rewards points. Must be a SoFi Plus member at the time a recurring deposit is received into your SoFi Active or Automated investing account to qualify. Bonus calculated on net monthly recurring deposits made via ACH and paid out as Rewards Points. See Rewards Terms of Service. SoFi reserves the right to change or terminate this promotion at any time without notice. See terms and limitations. https://www.sofi.com/sofiplus/invest/#disclaimers
Robo Advisor: Automated investing is offered through SoFi Wealth LLC, an SEC-registered investment adviser. 0.25% fee is based on your account value. The wrap program fee may cost more or less than purchasing brokerage, custodial, and record keeping services separately.
Robo-advisors
Robo-advisors use algorithms to create and manage diversified investment portfolios based on your financial goals, risk tolerance and time frame. By automating much of the process, robo-advisors are ideal for individuals who prefer simplicity or lack the expertise to build a portfolio themselves.
Most platforms charge lower fees than traditional financial advisors, often offering management fees as low as 0.25% annually. They also eliminate the need for constant decision-making, as the platform automatically rebalances your portfolio and reinvests dividends.
However, this convenience comes with some limitations. Robo-advisors typically offer less customization and may not cater well to investors with complex financial needs or preferences for specific asset classes.
Robo-advisors are best suited for investors with smaller portfolios or those who value convenience over control. While they provide a cost-effective solution for beginners, more advanced investors may prefer the flexibility of brokerage accounts or personalized advice from financial planners to align investments with their broader financial strategy.
Tax-loss harvesting technology helps maximize your after-tax returns.
Customize your portfolio based on sectors you care about or get expert recommendations for a diversified ETF portfolio.
Easily track and optimize retirement goals with advanced financial planning tools.
Certificates of deposit
Certificates of deposit (CDs) are a low-risk investment option offered by banks and credit unions. With a CD, you agree to lock your money away for a specific period — ranging from a few months to several years — in exchange for a fixed interest rate.
This predictable return makes CDs an attractive choice for conservative investors or those seeking to preserve their capital. They are typically insured by the FDIC or NCUA, meaning your principal investment is protected up to $250,000 per institution.
Additionally, the fixed interest rates provide certainty, regardless of market fluctuations. However, this stability comes with drawbacks. CD rates are often lower than the potential returns from stocks or other investment options, which means your money may not grow as quickly. Early withdrawals from a CD usually result in penalties, reducing the overall return if you need access to your funds before the term ends.
CDs are well-suited for investors with short- to medium-term financial goals who can afford to leave their money untouched for the term’s duration.
Western Alliance offers a strong 3.95% APY on its 12-month CD through Raisin. Pay no fees and just a $1 minimum deposit.
3.95% APY.
Interest compounds daily.
$0 monthly fee.
Money market accounts
Money market accounts (MMAs) are a type of savings account that typically offers higher interest rates than traditional savings accounts while providing more flexibility for accessing funds. They are often seen as a middle ground between high-liquidity savings accounts and longer-term investments like certificates of deposit.
MMAs allow account holders to earn interest while still offering limited checkwriting and debit card privileges. Like standard savings accounts, they are usually insured by the FDIC or NCUA up to $250,000 per depositor. These factors make them a secure option for individuals looking to maintain liquidity without sacrificing all potential returns.
However, their interest rates, while higher than basic savings accounts, are often lower than returns offered by more aggressive investment options like stocks or mutual funds.
Money market accounts also limit the number of withdrawals or transfers you can make in a statement period, typically capped at six. This aspect of MMAs may not suit individuals who need frequent access to their funds. Additionally, some MMAs require higher minimum balances to open or maintain the account, which can be a barrier for smaller savers.
Overall, MMAs are best for investors seeking a low-risk way to earn modest interest while keeping funds accessible for short-term financial goals.
Earn interest with a high-rate account while accessing your cash through ATMs, debit, or checks. Plus, enjoy no-fee withdrawals at over 60,000 ATMs nationwide.
Retirement accounts, such as Individual Retirement Accounts (IRAs) and employer-sponsored 401(k) plans, are designed to help individuals save for their future while offering tax advantages.
Contributions to traditional IRAs and 401(k)s may be tax-deductible, and the investments grow tax-deferred until withdrawn in retirement. Alternatively, Roth IRAs and Roth 401(k)s allow contributions with after-tax dollars, offering tax-free growth and withdrawals in retirement.
One of the main advantages of retirement accounts is their potential for significant long-term growth due to tax benefits and compound interest. Employer-sponsored accounts like 401(k)s often include matching contributions, which provide an immediate boost to your savings. However, these accounts come with limitations, such as annual contribution caps set by the IRS and penalties for early withdrawals before the age of 59½.
Additionally, retirement accounts are primarily intended for long-term goals, making them less suitable for individuals who might need access to their funds in the short term. Choosing the right type of retirement account depends on your income, tax situation and retirement timeline. For example, Roth accounts may be ideal for those who expect to be in a higher tax bracket in retirement, while traditional accounts might suit those seeking immediate tax savings.
Get 1%–3% match on contributions, IRA transfers and 401(k) rollovers.
Choose your investments or get a recommended portfolio of ETFs.
Get bigger instant deposits, professional research and more with Robinhood Gold.
Pension plans
Pension plans, also known as defined benefit plans, are employer-sponsored retirement accounts that guarantee a specific payout upon retirement. These plans calculate benefits based on factors such as your salary history, years of service and age.
Unlike defined contribution plans such as 401(k)s, the employer bears the investment risk in a pension plan, making it a reliable option for retirees seeking predictable income.
Retirees receive regular payments, often for the remainder of their lives, which can provide financial stability and help cover essential living expenses. Additionally, some pensions offer spousal survivor benefits, adding an extra layer of security for families.
However, pension plans are becoming less common, especially in the private sector, as many employers have shifted toward defined contribution plans to reduce costs. Another significant drawback of pension plans is their lack of portability. If you leave a company before fully vesting, you may lose access to all or part of your benefits.
Furthermore, the stability of your pension depends on the financial health of your employer or the plan’s funding status, which could affect payouts over time.
Education accounts
Education accounts, such as 529 plans and Coverdell Education Savings Accounts (ESAs), are designed to help families save for future educational expenses while offering tax benefits. These accounts allow contributions to grow tax-free, and withdrawals are also tax-free if used for qualified education expenses, such as tuition, books or room and board.
A 529 plan is the most widely used education savings account due to its high contribution limits and flexibility. Funds can be used for K-12 education and higher education, making it a versatile choice for families. Coverdell ESAs, on the other hand, offer a smaller contribution limit but allow for a broader range of qualified expenses, including tutoring and school supplies for K-12 education.
The key drawback of education accounts is their limited use. If funds are withdrawn for non-educational purposes, they are subject to taxes and a 10% penalty on earnings. Additionally, these accounts may not be ideal for families who are unsure about their child’s future educational plans, as unused funds may require alternative strategies to avoid penalties.
Education accounts are best for families with clear educational savings goals and a long-term horizon, as the tax benefits and compounding growth can significantly reduce the financial burden of education costs.
Custodial accounts for kids
Custodial accounts, such as UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act) accounts, allow adults to save and invest on behalf of a child until they reach the age of majority, typically 18 or 21, depending on state laws.
These accounts are commonly used to fund a child’s future expenses, such as education or first-time home purchases. Unlike education-specific accounts like 529 plans, custodial accounts can be used for any purpose once the child gains control.
Additionally, they offer access to a wide range of investment options, including stocks, bonds and mutual funds. However, custodial accounts are not tax-advantaged, and unearned income above a certain threshold may be subject to the “kiddie tax,” which applies the parent’s tax rate to the child’s investment earnings.
Another consideration is that once the child reaches the age of majority, they gain full ownership of the account and can use the funds as they wish. This lack of control over how the funds are spent may be a drawback for some parents.
Custodial accounts are a great option for families looking to transfer wealth or teach children about investing, but they require careful planning to maximize their benefits and minimize tax liabilities.
Health Savings Accounts (HSAs)
Health Savings Accounts (HSAs) are tax-advantaged accounts designed for individuals with high-deductible health plans (HDHPs) to save for medical expenses. These accounts offer a triple tax benefit: contributions are tax-deductible, earnings grow tax-free and withdrawals for qualified medical expenses are also tax-free.
HSAs are unique in that any unused funds roll over from year to year, allowing account holders to build significant savings over time. Unlike flexible spending accounts (FSAs), which have “use-it-or-lose-it” rules, HSAs provide long-term flexibility. Additionally, once you reach age 65, you can withdraw funds for non-medical expenses without penalties, though they’ll be taxed as income.
However, HSAs are only available to those enrolled in HDHPs, and contribution limits are set annually by the IRS. While not ideal for everyone, HSAs can function as a supplemental retirement savings tool and are an excellent option for those looking to manage healthcare costs effectively.
How to choose which investment account suits your financial goals
Choosing an investment account starts with understanding what you’re saving for and how your financial situation aligns with the options available. Here are some important considerations to help narrow down your choices:
Risk tolerance. Your comfort with potential losses versus expected returns will guide your choice. Low-risk investors may lean toward CDs or money market accounts, while higher-risk investors might prefer brokerage accounts or robo-advisors.
Time frame. Short-term goals often require liquid options like money market accounts, while long-term goals are better suited for retirement or education accounts that benefit from tax advantages and compound growth.
Tax implications. Consider how taxes impact your investments. Tax-advantaged accounts like IRAs and 529 plans can help maximize growth, while taxable accounts like brokerage accounts may offer greater flexibility but come with potential capital gains taxes.
Account fees and costs. Evaluate any associated costs, such as management fees, trading commissions or penalties for early withdrawals. High fees can erode returns over time, so choosing low-cost options can make a big difference, especially for long-term investing.
Benefits of investment accounts
Investment accounts offer a range of advantages that can help you achieve your financial goals while growing your wealth. Some of the most notable benefits include:
Compound interest. One of the most significant benefits is compound interest, which allows your investments to grow exponentially over time. By earning returns on both the principal amount and previously accumulated interest, your wealth can expand faster, especially for long-term investments.
Tax benefits. Many accounts, like 401(k)s, IRAs and 529 plans, offer tax-deferred or tax-free growth. These tax advantages reduce your overall tax burden and maximize returns, making a significant difference over decades of saving.
Diversification opportunities. Investment accounts give you access to a wide variety of asset classes, such as stocks, bonds and ETFs. This feature allows you to spread risk across different sectors and markets, enhancing portfolio stability and long-term growth potential.
Goal-specific savings. Certain accounts are tailored to specific goals, like retirement or education. For example, 529 plans help families save for educational expenses, while IRAs and 401(k)s are designed to build long-term retirement savings with tax advantages.
Limitations of investment accounts
While investment accounts offer many advantages, they also come with some drawbacks. Here are a few key limitations to keep in mind:
Low liquidity. Many investment accounts lock funds for a specific period, making it difficult to access your money without penalties. This limitation can be particularly restrictive for accounts like certificates of deposit or retirement plans, where early withdrawals may incur fees.
Potential loss of capital. Investments in accounts like brokerage or custodial accounts carry the risk of losing money, particularly during market downturns. While diversification can reduce this risk, it’s not possible to eliminate it entirely.
Contribution limits. Some accounts, like IRAs or 401(k)s, have annual contribution caps, which can restrict how much you can invest in a tax-advantaged way. For high-income earners or those with larger savings goals, these limits may necessitate the use of supplemental investment options.
Fees and expenses. Many investment accounts come with management fees, trading costs or administrative charges that can erode your returns over time. Understanding the fee structure of an account is critical to maximizing its benefits.
Bottom line
Investment accounts are a vital tool for building and managing wealth, whether you’re saving for retirement, education or other financial goals. By understanding the unique benefits and limitations of each account type, you can choose the one that best aligns with your objectives and risk tolerance.
Ready to take the next step? Explore your options and start growing your investments today.
Frequently asked questions
What is the best type of account for a large sum of money?
For long-term growth, tax-advantaged accounts like IRAs or 401(k)s may be ideal. If you prioritize flexibility, a brokerage account allows access to a broad range of investments without restrictions on contributions or withdrawals. For those seeking safety and guaranteed returns, certificates of deposit or high-yield savings accounts may be a better fit.
Can I have multiple investment accounts?
Yes, you can have multiple accounts to meet different financial goals. For instance, you might use a 401(k) for retirement savings, a brokerage account for general investing and a 529 plan for a child’s education. Diversifying account types can help you take advantage of various benefits, such as tax advantages and flexibility.
Shane's career started with the US Department of Defense where he performed research for 8 years. He then studied philosophy and became fascinated by the ways in which technology and finance can consolidate to impact the world's socio-economic order. To date, he has written hundreds of articles with various insights into digital assets, trading, investing, and the ways in which technology can be used to further optimize the stock trading and settlement processes. His work has been featured in Yahoo Finance, Nasdaq, Bitcoin Magazine, Investing.com, Tokenist, and others. See full bio
Start your child on a path toward financial success with a Roth IRA for kids.
How likely would you be to recommend Finder to a friend or colleague?
0
1
2
3
4
5
6
7
8
9
10
Very UnlikelyExtremely Likely
Required
Thank you for your feedback.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
Advertiser disclosure
Finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions. While we are independent, the offers that appear on this site are from companies from which Finder receives compensation. We may receive compensation from our partners for placement of their products or services. We may also receive compensation if you click on certain links posted on our site. While compensation arrangements may affect the order, position or placement of product information, it doesn't influence our assessment of those products. Please don't interpret the order in which products appear on our Site as any endorsement or recommendation from us. Finder compares a wide range of products, providers and services but we don't provide information on all available products, providers or services. Please appreciate that there may be other options available to you than the products, providers or services covered by our service.
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
