When considering your options to invest either for retirement or just with the extra money you have, your bank should be one of the last places you consider. Banks are places you keep money in savings, certificates of deposit, and checking accounts; NOT places you want to invest funds for the future. If you never dealt with financial institutions other than banks, it may not be obvious why you should not — and here are the reasons.
Can You Invest In Stocks Through Your Bank?
The short answer is yes, you can.
But remember that acting as a brokerage is the traditional territory of full-service and discount brokerage firms. These firms have decades of experience more than banks, and their processes and technologies are far more sophisticated and mature.
If you don’t want to open a brokerage account and willing to do long-term investing in a less than ideal condition, then you could invest through your bank.
But why would you want to do that? It is like driving your car and not being allowed to go past the second gear…you’re just hurting yourself in the long run.
Why Investing Through Your Bank is a Big Mistake
Deposit your money with a bank, but don’t rely on it for retirement investing.
1. Limited Investment Options
The first problem with investing at your bank is you will have limited investment options. The bank will have either their own mutual funds or those of their partners for you to pick from. You won’t have nearly as many options as you would if you had elected to go with a discount brokerage firm.
2. Expensive Investment Options
When your investment choices are limited, you are much more likely to run into expensive investment options. When your bank steers you towards their own investment options or those of their partners, you are not going to get the most competitively priced options. You can expect higher expense ratios and additional fees.
3. Higher Trading Costs
The most competitive discount brokerage firms offer equity trades at $0 to $6.95 per trade. They offer some no-transaction fee mutual funds or charge you a similar trade fee. While there isn’t a set standard of bank trade pricing, you can be assured it won’t be as competitive as a discount broker.
4. Less Impressive Trading Platform
Banks are in the business of taking in deposits and loaning out that money while paying nominal interest to the deposit holders. They are not in the business of helping you invest money for the long term. They are not in the business of putting together a powerful trading platform for you. Banks will either minimize the technological investment in this area or end up buying a secondary firm to shore up this area. Discount brokerage firms are explicitly built to help you invest money and trade stocks, bonds, and mutual funds. They will be inherently better in this area than your bank.
5. Biased Advice
Finally, whenever you walk into your bank branch to meet with your bank’s investment advisor, you must know you are not getting unbiased advice. The adviser will have some sort of certification behind his or her name, but it doesn’t mean their advice is impartial.
The only way to get unbiased investment advice is to use a fee-only financial advisor that has a fiduciary duty to you. Otherwise, the advice undoubtedly will be made with a hint toward making the bank money. The advisor you are speaking to wants to keep his job and will have targets given to him by management for assets under management or revenue generated through commissions. That means churning your investments or pointing you toward expensive options.
A Better Option: A Discount Brokerage
When compared to investing with your bank, a discount brokerage comes out ahead. You will have more investment options, cheaper trading costs, and a better trading platform. The only thing you might miss out on, depending on the firm, is the unbiased advice. But you shouldn’t be getting advice from anyone that you are handing money to be invested over to. You should seek out an independent and unbiased advisor for advice, then find a brokerage firm that you can execute the advisor’s strategy with. Keep your deposits at the bank and your investments with an investment firm.
Kevin Mulligan is a debt reduction champion with a passion for teaching people how to budget and stay out of debt. He’s building a personal finance freelance writing career and has written for RothIRA.com, Discover Bank, and many others.
I used to agree whole-heartedly with what you have written here. However, I have since learned it isn’t always necessarily so. Last year, I moved my traditional IRA from Vanguard’s brokerage to Wells Fargo. I also opened their all-the-bells-and-whistles checking account, which they call “PMA”. Because I have a brokerage account, I get the PMA account for free (normally $30 per month). Because I have a PMA account, I get 100 commission free trades per year. How do you like that circular logic? I love it! At Vanguard, I had to pay a commission for any non-Vanguard ETF. I don’t… Read more »
Too bad a local bank is such a poor way to invest. you think of a bank as a trusted place to learn about and keep your money. But these days walking into a bank is not much different than walking into most retails stores…need I say more?!
Kevin – If you bank at Wells Fargo and meet certain deposit requirements you qualify for a PMA account. Through WellsTrade you then receive 100 free trades per acount per year.
Its ironic we’re still supposed to think of banks as deposit holders and loan makers when in reality they take customers money and gamble it away.
I really wish the firewall still existed between “banking” and “investing” but its soo hard to legislate greed.
WellsFargo does have a decent & free trading platform for the qualified individual but I expect them to charge for it any day now.
The only good investment at the bank is a CD just large enough to get free checking priviledges. I maintain a $5,000 CD which earns interest and saves me about $300 a year in bank fees (a 6% return).
Is GIC Investment with Banks recommended? Also I have mutual funds investment with RBC but charges me $510 every year for financial advisor.