Introduction:
Whether you’re looking to track stocks or cryptocurrencies, enjoy commission-free trading, or wish to take advantage of advanced stock charts, Robinhood has all the features you need to stay on top of your portfolio at all times.
But it can be difficult to figure out which account is right for you without knowing the different types available through Robinhood itself. In this article, we’ll cover seven different types of accounts that you can open with Robinhood and explain why each one might be the best fit for your financial needs.
1) Regular Stock Account
In addition to your cash balance, you'll also have an investment portfolio that lets you buy and sell individual stocks. To open a regular stock account, you’ll need to deposit at least $1,000 into your Robinhood account.
However, we've also got instant access accounts that let you put in as little as $5. We think instant access is better for most people because it means less paperwork and it makes it easy to buy and sell when you want. That said, if you have over $10,000 and don't mind doing some work, you can get started right away with a regular stock account.
2) Two Investing Options
The first thing to know about investing with Robinhood is that you’re limited to two options: individual stocks and ETFs. That may seem limited, but each product can be used in a variety of ways depending on your goals.
For example, an ETF (Exchange-Traded Fund) is great for diversification; you can easily build a portfolio by holding several ETFs within one brokerage account. In addition, ETFs often have lower fees than individual stocks. For example, if you decide to buy just one stock through Robinhood at $2 per share—and you pay a $0 commission—you’ll end up paying more than $6 per trade.
3) Traditional IRA
Traditional IRAs are tax-deferred vehicles. This means you don’t pay taxes on any interest, dividends, or capital gains when your money is invested, but you will when you withdraw it at retirement. Depending on your income and whether or not you participate in an employer-sponsored retirement plan (such as a 401(k)), there are limits to how much money you can contribute to a traditional IRA each year.
Traditional IRAs can also have required minimum distributions once a person reaches age 701⁄2, which may put more pressure on your budget during retirement. If a Roth IRA isn’t available where you work, then opening one at another institution makes sense if your income allows for it.
4) Roth IRA
As your income increases, consider investing in a Roth IRA. With a Roth IRA, you put money into an account that allows you to grow your investment tax-free. Once you reach age 59 1/2 and begin withdrawing money from your account, all withdrawals are free from taxes as well.
Unlike with a traditional IRA, contributions can be withdrawn at any time without penalty. One downside is that there is an annual limit on how much you can contribute to your Roth IRA every year -- $5,500 as of 2017. Depending on how long it takes for you to reach retirement and how aggressively you invest, these contributions may not allow enough growth over time to sustain your lifestyle in retirement.
5) College Savings
College savings accounts are an excellent way to start saving for your child’s education. By starting early, you can ensure that your savings can grow over time and aren’t limited by inflation. Today, there are many ways to save for college—but which one is right for you? It depends on what your financial goals are and how much you want to taketor to make as much money as possible.
If you’re interested in opening a college savings account, we discuss everything from 529 plans to Coverdell ESAs below! We also talk about general strategies for making money off of your investments later in life. We hope you enjoy reading it!
6) Spousal IRA
That said, opening a spousal IRA is straightforward. In most cases, as long as your spouse has earned income (which you won’t be able to contribute if you file your taxes separately), you’ll be able to open a spousal IRA in his or her name. The two options here are to open a traditional or Roth account.
A traditional IRA isn’t particularly advantageous for young people—you can only deduct contributions on up to $5,500 per year—but it’s worth considering if your spouse will be in a higher tax bracket when he or she retires and therefore more likely to benefit from the deduction. If that’s not a concern, then consider a Roth IRA instead. Unlike a traditional IRA, which requires you to pay taxes on your contributions up front but allows withdrawals without penalty after age 591⁄2, withdrawals from a Roth are completely free of tax at any time.
If you think there’s even an outside chance that either of these situations could apply to you down the line, it might make sense to go ahead and open both types of accounts now. Just remember that once one type of account is opened, any money put into another type will count toward your annual contribution limit ($5,500).
7) Commission-Free Options
If you’re looking to invest in equities without paying high-commission fees, then a commission-free equity broker like Robinhood is for you. Investing directly through a broker comes with its pros and cons, but having a single account for multiple investments does make it easier to keep track of your portfolio. On top of that, $0 commission fees mean that as long as you have enough cash on hand, you can buy as many stocks and ETFs (in dollar amounts) as you want. Still, if saving money is your goal, look into other discount brokers that offer reduced rates on trades.
While most charge higher commissions than Robinhood, they do offer special deals from time to time. These special offers usually come in two forms: discounted trading during certain times of the day or on weekdays only, or discounted trading for specific types of securities. This means you might be able to get more bang for your buck depending on what kind of securities you're interested in buying.
Conclusion
Robinhood opened its doors in 2014, and today offers all customers free trading across U.S. equity and options markets. In 2017, they added crypto-trading support for Bitcoin and Ethereum to a group that already included commission-free options trades on Apple, Google, Facebook, Microsoft, Amazon, Exxon Mobil, and over 100 other publicly traded companies.
The company’s mission is to democratize investing by cutting costs for investors and building products that are focused on long-term value creation.