Finding the best online broker
Over the past few years, the nature of online investing has changed. Online brokers have added many new products and services, ranging from new investment options to more online education and social networking features. Mobile apps in particular have proliferated and are now used by the majority of investors, according to Barron's, which now takes mobile offerings into consideration in its annual rankings of online brokers. Most are available for iOS and Android; the best allow investors to make trades, check their accounts, stream real-time quotes and access in-depth research.
Many online brokers have also lowered their commissions and fees, opting for flat-rate prices rather than sliding-scale or tiered pricing. You can expect to pay around $7 to $10 per trade these days, though some offer even lower prices (with fewer services). While the flat-rate pricing trend is becoming the industry standard, however, it's imperative that potential customers read the fine print to understand online broker's commissions, fees and maintenance costs.
Online brokers offer more than just stocks
Gallup reports that just over half of Americans hold stocks, though most online stockbrokers also offer access to everything from options to mutual funds to international stocks (though the latter might be limited). Research and educational resources are key in deciding which investments to make, and many online brokers have stepped up their offerings in this category. Real-time quotes are the industry standard, and many brokerages offer free research reports from well-known third-party sources like Morningstar and Standard & Poor's. In addition, detailed charts, graphs and even recommended retirement plans and investments (based on your portfolio and risk tolerance) are likely to be offered with an online account.
Traditional brokerages like Fidelity, Charles Schwab, Scottrade, TD Ameritrade and Vanguard dominate the online brokerage market, but nipping at their heels are innovative lower-cost firms like TradeKing, OptionsHouse and Interactive Brokers. In addition, online broker E*Trade is making a comeback as one of the stronger firms.
Many online brokers receive stellar reviews from numerous expert sources and financial bloggers. Based on professional reviews, three companies stand out amid the stiff competition: TD Ameritrade, for IRAs; Scottrade, for overall investing; and TradeKing, for discount trades.
Best Online Brokers
Scottrade is the top online broker
Online brokerages are in an increasingly competitive business, which has been great for consumers. Easy-to-use platforms, expert research, financial education and lower commissions and fees are all standard now, enabling even traditional discount firms to rival full-service brokerages.
The best-reviewed online broker, Scottrade, was previously our pick for discount broker, but the service offers much more than just bare-bones investment options and cheap trades. Scottrade's flat-rate fees are on the lower end (Est. $7 per trade) and there are no maintenance or inactivity fees. A new account requires just $500. Scottrade customizes resources for everyone from the long-term investor to the day trader on its platform.
In addition to online trading, the firm has 500 branch offices with excellent seminars. Experts also rave about Scottrade's online educational resources. In addition, it's a popular choice among individual investors, winning top spots among respected institutions like J.D. Power and Associates, ConsumerReports.org, the American Association of Individual Investors and more.
Scottrade is the front-runner, garnering more positive reviews than other online brokers, but competitors aren't far behind. E*Trade, one of the first online brokers, is once again a darling of professional reviewers thanks to its stellar, highly customizable online tools and investment options, including 50,000 bonds and access to trades in 35 countries. Its fees for trades (Est. $10 for average investors) are on the higher side, however.
Fidelity also offers a full range of services to online investors, from international trading to checking accounts; its commissions (Est. $8) are cheaper and it offers nearly 3,000 no-transaction-fee (NTF) funds. Transaction-fee funds will run you a whopping $75 at Fidelity, however, and the new account minimum is $2,500. TD Ameritrade, the best-reviewed online broker for IRAs, is also an outstanding choice for general investments, though its trades (Est. $10) are among the highest. Scottrade, TD Ameritrade, E*Trade and Fidelity also offer banking, a huge plus for consolidating your finances.
The best overall brokerages offer more than most average investors need. Some can cater to professional investors as well: Frequent traders would probably be happy with E*Trade's technical analysis, tools, charts and access to many types of investments, for example. Interactive Brokers is a popular online brokerage for active traders thanks to its access to more than 100 markets globally, ultra-low fees (Est. $0.005 per trade) and award-winning trade technology. The downside? Interactive Brokers has been slapped not once but twice with fines for account mismanagement and other irregularities by the U.S. commodities regulator since 2012.
TD Ameritrade is the best online broker for an IRA
TD Ameritrade offers nearly 2,000 low- or no-cost exchange-traded funds (ETFs) and no-transaction funds (NTF) for your IRA, along with 13,000 mutual fund options and no minimums or maintenance fees. The firm has been declared "best broker for your IRA" by Kiplinger' and is Barron's pick for long-term investing. Retirement options include Traditional, Rollover, SEP, Simple and Roth IRAs.
Retirement options aren't always easy to choose, particularly for less savvy investors whose only investments may be in their IRA. TD Ameritrade has excellent resources for average investors, like tools, calculators and in-person or online courses just for retirement. Many are available via the company's easy-to-navigate website as well. Clients can also benefit from personal service at TD Ameritrade's 100-plus branches.
Not surprisingly, the mutual-fund giant Vanguard (Est. $7 per trade) also fares well for IRA holders. The company normally requires $3,000 to open an account, but it's just $1,000 for many IRAs. Traditional, Rollover, SEP, Simple, Roth, Small-Plan and Individual 401(k)s are available for retirement investments, and the company is top in retirement education.
Vanguard's mutual funds are well known for having extremely low commissions and fees, which can eat away at your retirement. Vanguard has 163 of its own no-commission mutual funds and 67 ETFs (which carry no commission or sales fees); Vanguard has a total of 14,100 funds available for purchase or transfer.
Fidelity, another major mutual-fund provider, has over 10,000 funds, including nearly 2,900 NTFs. (NTFs have no initial fees, but may have additional costs.) Fidelity's minimum, however, is $2,500 and transaction-fee mutual funds cost about $75. Charles Schwab (Est. $9 per trade; Est. $76 for transaction-fee funds) has over 14,000 funds, while OptionsXpress (Est. $10 per trade) has 5,400 no-load (no-fee) options.