5. Types of Accounts
a. Types of financial institutions for saving and investing
Banks and credit unions
– offer basic savings accounts (sometimes called passbook accounts) as well as money market accounts, CDs and other investment tools such as Individual Retirement Accounts (IRAs).
Mutual fund accounts – These accounts, taxable or tax-advantaged, can be opened directly with a mutual fund or indirectly through a broker or financial advisor. One advantage of a mutual fund is the ability to build a diversified investment portfolio without purchasing individual stocks. Although there are many choices of investments, they are usually all from the same mutual fund company.
Brokerage accounts – These accounts, taxable or tax-advantaged, can be opened directly with a brokerage firm or indirectly through a broker or financial advisor. One advantage is the ability to build a diversified investment portfolio in one account. In one account, people can invest in many different investments, including individual stocks, bonds, commodities, even CD’s. In a mutual fund account, you are simply buying mutual funds. Another important difference between a brokerage and mutual fund account is that a mutual fund account usually draws on funds solely from one mutual fund company. A brokerage account in most cases uses investments available from many different companies.