Why brokerage investment accounts are becoming more popular

A growing number of Americans are turning to the old-school brokerage account.

Unlike retirement accounts, brokerage accounts put very few limits on your money. You can withdraw what you need, when you need it.

That might explain why 42% of U.S. investors said they had a taxable brokerage account in 2018, up from 32% in 2010, according to a survey from Hearts & Wallets, a data research firm.

"More and more consumers are recognizing the tension between the ability to defer taxes through accounts like 401(k)s and the need for ready access," said Laura Varas, founder and chief executive of Hearts & Wallets.

While checking and savings accounts also offer easy access to your money, a diversified investment account has the potential to earn more.

Along with liquidity, brokerage accounts are easy to open. You pick an online broker or investment app, fill out a short application online and start investing. In contrast, retirement accounts have contribution limits, income phaseouts and other fine print to consider. But it is worth jumping through those hoops if you are saving for retirement, because of valuable tax benefits.

For example, 401(k)s and traditional IRAs let you defer taxes until you retire. With Roth 401(k)s and Roth IRAs, you pay taxes on your money upfront, but then your money grows tax-free.

But if you are on track saving for retirement and you have got other goals you are working on — maybe a down payment for a house — then a brokerage account may make sense.

Brokerage accounts can be really beneficial for medium-term goals, says Riley Poppy, a certified financial planner in Seattle. "You can have multiple brokerage accounts set up for different goals, and you can access the money whenever."

Why that time horizon? Money for a midterm goal that's 10 or more years away could — dare we say should? — be invested at least partly in stocks or stock mutual funds for growth. And that time frame gives you the leeway to avoid selling during a steep downturn.

If you will need your money in five years or less, consider a high-yield savings account or bank certificate of deposit, where you won't face investment volatility.

Brokerage accounts are not perfect. Generally, you are going to owe taxes on the investments in the account every year. That said, while taxes can be a disadvantage, they're not a deal-breaker because there are a number of ways to reduce your tax bill.

Andrea Coombes is a writer at NerdWallet. E-mail: acoombes@nerdwallet.com. Twitter: @andreacoombes.