Finding a great online brokerage firm to hold your Roth IRA, Traditional IRA, or just general trading account is a daunting task. Each broker tailors their website to show off their strengths and hide their weaknesses in comparison to their competition. Comprehensive fee information is hidden deep within the website; sometimes you specifically have to do a Google search to find the page with the entire fee and commission agreement.
Simply put, this is not how it should be. We believe transparency and easy to navigate websites should be the norm with brokerages.
Until that time comes we have done the research for you. (You can thank us later when you retire on your own island, ok?)
Below you will find a comprehensive review of the most critical aspects to look at when selecting your online broker:
- commissions for stock and ETF trades
- commissions on trading mutual funds
- commissions on option contracts
- minimum deposit requirements
- IRA minimum deposit and fees
- account closure fees
By finding the right balance of low fees that fall in line with your investing needs you can trim thousands of dollars from the cost of investing over your lifetime. And that makes Good Financial Cents if you ask me.
Here’s a summary of all of the brokerage information:
Online Brokerage Firm Stock Trade Cost Mutual Fund Trade Cost Options Contract Trade Cost Minimum Deposit Minimum to Open IRA Account Transfer Out / Closing Fee
Scottrade 7.00 17.00 7.00 + 1.25/contract 500.00 500.00 0.00
OptionsHouse 3.95 9.95 8.50 + .15/contract 1,000.00 0.00 20.00 for IRAs
ShareBuilder Advantage 7.95 or 4.00 automatic 19.95 or 4.00 automatic 7.95 + .75/contract 0.00 0.00 75.00
ShareBuilder Basic 9.95 or 4.00 automatic 19.95 or 4.00 automatic 9.95 + 1.25/contract 0.00 0.00 75.00
E*TRADE 9.99 19.99 9.99 + .75/contract 500.00 0.00 60.00
TD Ameritrade 9.99 49.99 9.99 + .75/contract 0.00 0.00 75.00
TradeKing 4.95 9.95 4.95 + .65/contract 0.00 0.00 50.00 + 50.00 for IRAs
MerrillEdge 6.95 19.95 6.95 + .75/contract 0.00 0.00 75.00
Fidelity 7.95 75.00 7.95 + .75/contract 2,500.00 2,500.00 or 200.00/month 50.00
Charles Schwab 8.95 76.00 buy, 0.00 sell 8.95 + .75/contract 1,000.00 1,000.00 50.00
OptionsXpress 8.95 9.95 14.95 flat or 1.50/contract 0.00 0.00 50.00 IRA, 60.00 Trading
Scottrade (Our #1 Pick)
Scottrade is by far one of our favorite brokers. The company has always been a leader in the online discount brokerage space with their competitive $7 stock and ETF trades. When trades are so inexpensive building up a diversified portfolio is easy.
But stock trade cost isn’t the only thing you should look at when you are comparing brokers. Scottrade also has 500+ physical brick and mortar locations across the country. We think this is one of Scottrade’s biggest advantages. We would love for all of our readers to be capable of putting together a long term investment plan, but let’s face it: investing isn’t always easy and simple. Sometimes it is really nice to sit down with a qualified professional to review your plan and help you make investing decisions. With over 500 locations across the country you can always find a branch near you to go sit down in person with someone.
The firm does require you to bring $500 to open an account, but if you are opening up a brokerage account you are going to need at least $500 to get started anyways. Considering a Roth IRA can be funded with $5,500 per year we don’t think the minimum requirement is a big deal.
On top of that, Scottrade doesn’t charge a fee for you to close or transfer your account assets out to another broker. This is unheard of with brokerage firms as you can see above in our chart. Scottrade is the only firm that won’t charge you a fee for taking your investing elsewhere.
Rated #1 in mobile apps for trading by Barron’s in 2012, OptionsHouse is a great option for experienced investors. Why? Extremely low stock and ETF trading costs; each trade costs you just $3.95. By far the lowest cost of any of the brokers listed here, OptionsHouse is designed for the investor that already has a financial plan and solid financial habits in place. If you don’t need lots of research or hand-holding, you’ll be just fine. The company is built around stock, ETF, and options trades. You can get mutual funds as well, but not as cheaply as the others.
You do need $1,000 to get started with OptionsHouse (or $2,000 if you want to trade on margin; not recommended). There are no account maintenance fees. You only pay an account closing or asset transfer out fee for IRAs which is $20.
ShareBuilder is another one of our favorite brokerage firms, and it all comes down to cost and building up good habits. ShareBuilder is not for day traders that want to see real time quotes and crazy charts. The company is all about slow and steady growth of your portfolio size through automatic investment.
The company offers two accounts: ShareBuilder Basic and ShareBuilder Advantage. The Advantage program costs $12 per month but lowers some of your trading costs. (The average investor can stick to ShareBuilder Basic with automatic investments to save significantly on commissions.)
The best way to use ShareBuilder is to set up a monthly automatic contribution. (You can also set up weekly or twice per month automatic transactions as well.) Investing monthly will lower your commission fee to just $48 per year while still building up your portfolio. You’ll participate in dollar cost averaging and not worry about timing the market. You also avoid the higher mutual fund trading cost of $19.95 by contributing automatically, lowering that cost to just $4 per investment.
E*TRADE was one of the first major companies to develop an online trading platform, and they haven’t looked back. They’ve been rated at the top by Kiplinger’s (customer service), Barron’s (research amenities), and Smart Money (trading tools). Whether you are a new investor or an experienced day trader, E*TRADE’s platforms can work for you. They have a deep education section that can help you learn more about investing and a great trading platform if you want to track everything closely.
Trades are at the higher end of our range, but they are running a promotion right now where you can get 60 days of free trades and up to $500 for moving your account to E*TRADE. You’ll need $500 to open an account; closing your account will cost $60 which is about average in our comparison.
TD Ameritrade is another broker to consider. The company prides itself on not only competitive pricing, but an extensive education library so you can learn more about investing. Stock trades come in at the top end of our range at $9.99, and mutual fund trades run $49.99. That is a bit pricey in our book.
On the flip side they have over 100 commission-free ETFs (much like Schwab) that can allow you to build a healthy diversified portfolio without needing to pay any commission costs. Another benefit of investing with TD Ameritrade is they provide a lot of 3rd party research so you know you’re not being pointed in the wrong direction just so they can get a commission.
You also get access to over 100 branches across the country so you can swing by a physical location to talk to someone face to face. That never hurts in the world of online brokerages; sometimes it is a lot easier to make sure you get a clear explanation by talking to a live human being.
TradeKing recently merged with Zecco. Both companies were started to drive down trading costs in the industry. They were the little dogs of the industry, but through merging are now a major player. Aside from using ShareBuilder’s automatic investing, TradeKing has the 2nd lease expensive trades of all the brokers shown here at just $4.95 per trade.
The company focuses on having an easy to use website with a deep community of investors to share and discuss ideas with. There is no minimum deposit to get started, and unless you show absolutely zero activity in a 12 month period there are no account maintenance charges. (If you don’t have activity in 12 months you can still avoid the $50 annual activity fee by having an account balance of at least $2,500.)
The only thing to watch out for with TradeKing is there is a $50 fee to transfer your funds to another broker. That’s actually on the lower side of average in our comparison. However, if you have an IRA account you are closing then they tack on an extra $50 fee.
Merrill Lynch is part of Bank of America, and the company’s trading platform for investors is called MerrillEdge. I wasn’t as familiar with the company, but was pleasantly surprised once I dug in a little bit. The company offers trades in the same price range as Scottrade at $6.95 per stock and ETF trade. You also avoid minimum initial deposits and annual account maintenance fees. The company does charge $75 to close your account which falls in the upper end of the range of account transfer out fees.
Fidelity is another bellwether of the online brokerage firm industry. They offer mutual funds that other brokerages let you invest in (like Vanguard), but also have a competitive online brokerage. Stock and ETF trades are competitive at $7.95, but the mutual fund commission of $75 is disappointing. However, you can avoid the mutual fund transaction fee by investing in almost 200 different Fidelity Funds. There are enough options there to build up a diversified portfolio.
You need $2,500 to open up a brokerage account with Fidelity. If you’re opening an IRA you can start with just $200 per month. There is an account closing / transfer assets out fee of $50.
Schwab is one of those old school brokers that has successfully moved into an online business model. Their commissions on stocks and ETFs are competitive at $8.95 per trade, but like Fidelity the mutual fund cost is very high at $76. That fee is only for buying shares, not for selling which has a $0 commission. Technically that makes your buy and sell commission $38 each way which is slightly more competitive, but doesn’t come close to touching the under $20 per trade fees that some of the other brokers have.
One thing we really like about Schwab: their Schwab ETFs have expense ratios that beat Vanguard and SPDR ETFs. That is saying something because the expense ratios for those two firms are extremely low. In investing there are few things you can control, and annual expenses is one of them, so this is a great move by Schwab. Plus you don’t pay a commission when you trade Schwab ETFs.
OptionXpress is more popular in the options trading world, but the company can be a fine choice to build up other types of assets. Stock and ETF trades are similar to others in the industry at $8.95. The mutual fund charge looks like at $9.95, but their commission page lists “$9.95 plus load fee.” Load fees are where you are charged a significant chunk of your investment as a “sales load” or “front end load” or “back end load” that goes directly into the hands of the person who sold you the investment. These fees can run as high as 5.75% and should be avoided. However, not every fund at OptionXpress will have a sales charge this hard. (If it does, you can still benefit by building your portfolio out of ETFs instead.)
One other interesting tidbit: OptionsXpress is owned by Charles Schwab. I think it is interesting that the stock/ETF trade cost is the same, but the mutual fund costs are different.
One last thing: you don’t pay extra for talking to a licensed trader on the phone. Plus they are open after the market closes, too, so you can get guidance without having to cram it into the shorter market day.