Best Online Brokers

Best online brokers for long-term investors

Although Charles Schwab is not top-ranked in every area by any one review, it receives consistently high marks from almost all of those we consulted. Experts note that Schwab keeps simplifying its commission structure and has lowered costs. Investors used to pay $19.95 per trade; now it's $12.95 for the first 1,000 shares per year, $0.015 per share thereafter. Those with balances of more than $1,000,000 or who make more than 120 trades per year pay $8.95 per trade. Schwab has a $1,000 minimum deposit to open an account, which may be waived if you open a linked checking account or establish a minimum monthly deposit of at least $100. Another plus is that Schwab has dropped a hidden $3 transaction fee for each trade. Investors who want advice from a professional may contact someone via the website free of charge, or visit one of Schwab's 300 branch locations in person.

Schwab offers solid amenities like an easy-to-use website with lots of accessible information; Schwab Equity Ratings, for example, assigns a letter grade to about 3,000 domestic stocks. And the firm has now branched out into personal banking, offering both credit cards and checking accounts. Kiplinger's Personal Finance magazine rates Schwab second of the 12 best brokers in its latest review. In the online-broker satisfaction survey at J.D. Power and Associates, Schwab comes in third, close behind Scottrade and ShareBuilder/ING. SmartMoney's latest annual broker survey names Schwab best in the area of mutual funds and investment products, and Barron's gives it high marks for the research amenities and portfolio analyses and reports offered on its website.

Fidelity is generally rated highly but earns somewhat mixed reviews this year. Kiplinger's magazine names Fidelity best overall online broker, but the firm is not named best in any area by SmartMoney. In its November 2008 annual review of online brokers, Barron's names Fidelity the best online broker for buy-and-hold investors; the firm ranks only fifth out of 23 brokers overall, but it still earns good scores. Fidelity is routinely praised for its user-friendly website, with a wealth of amenities including tools for retirement planning, asset allocation and investment selection. Fidelity also offers a wide range of investment products, including more than 1,400 no-load, no-transaction-fee mutual funds. Its customer service is rated among the best in the business.

Fidelity has a three-tier commission structure for its customers. Customers who have more than $1 million in assets at Fidelity -- or who have $25,000 in assets and make more than 120 trades a year -- pay $8 per trade. Those who have assets of more than $50,000 -- or who have $25,000 in assets and make between 36 and 120 trades a year, or who make more than 72 trades a year -- pay $10.95 per trade. Third-tier commission rates are available to all customers and are $19.95 per trade. Inactivity, handling and maintenance fees have now been eliminated, and while a $2,500 minimum is required to open an account -- with a $250 minimum for additional investments -- customers are not penalized for dropping below that minimum. Like other full-service brokers, Fidelity offers checking accounts and credit cards, and customers can seek advice from a professional via the website or by visiting a branch office location.

Ameritrade and TD Waterhouse merged in 2005 to become TD Ameritrade. For a while, reviews said that the merged company was off to a shaky start, noting that this online broker was still in the process of evolving, as some of the premium features from Waterhouse were added back into the website. Now, however, TD Ameritrade is rated highly in a number of areas. Barron's likes the research and trading tools available on its website, such as the StrategyDesk program, which allows investors to test trading strategies without actually trading. SmartMoney also rates it the best online broker in the areas of research and trading tools, noting that its website is easy to use, even for novices. Kiplinger's Personal Finance magazine praises the firm's customer service, and Consumer Reports rates it excellent in the areas of research tools and customer support. Commissions at TD Ameritrade are a flat-rate $9.99, no matter how many shares are traded, and there is no minimum investment to start.

Muriel Siebert comes in third among the 12 best brokers covered in Kiplinger's November 2008 review. Kiplinger's cites in particular the firm's range of investment products and the third-party research it makes available to customers. Barron's likes Muriel Siebert's recently updated website, which allows easy customization and research, and it also rates Siebert among the five best online brokers for the buy-and-hold investor. This online broker's website still has all the tax-reporting tools that have been rated highly in the past, and Muriel Siebert continues to offer a high level of account protection, a choice of high-yield money funds and personalized service. There is no minimum investment, and Siebert offers straightforward -- though high -- $14.95 market-order commissions (up to 1,000 shares), regardless of account balances or activity. However, active investors or those with large balances can negotiate lower rates.

Mutual fund pioneer Vanguard gets four out of five stars in overall satisfaction in the J.D. Power's 2008 customer satisfaction survey, as well as superb scores for account offerings. We found this very interesting because no other reviewer rates Vanguard so highly. In fact, the 2008 reviews we consulted don't mention Vanguard at all. SmartMoney editors explain that they excluded Vanguard along with T. Rowe Price this year because these firms' online brokerages mainly support their fund businesses. Vanguard is known for its proprietary mutual funds with low expense ratios, but the cost to trade individual stocks via its site is relatively high. There is an annual account maintenance fee of $30, and trades run $25 each for those with assets of less than $100,000. Discounts are available for active traders or those with high account balances. Reviews say that the Vanguard trading platform works best for fund investors who want to buy a few blue-chip stocks to supplement their Vanguard funds.

Another online broker often rated highly is E*Trade, which in November 2007 ran into trouble with mortgage-backed securities in its banking unit. An infusion of cash from Citadel Holdings has kept the firm afloat, although Barron's still questions whether it may eventually be sold. Still, SmartMoney's 2008 review rates E*Trade the best online broker in two areas: trading tools and banking services. According to Kiplinger's Personal Finance magazine, E*Trade has one of the best bond selections of any online broker, and it's one of the top three for investors seeking access to foreign markets. Its customer service remains questionable, however, although Barron's notes some improvement over the past year. E*Trade has branch offices in 16 states and Washington, D.C., where customers can go for in-person advice.

E*Trade's commissions range from $6.99 to $12.99 for a market order, based on your asset amount or number of trades in a quarter (1,500+ trades earns the lowest per market order; less than $50,000 in assets warrants the highest). E*Trade does have a $40 maintenance fee per quarter if you don't make at least one trade every three months (IRA and custodial accounts are exempt). Those with additional E*Trade accounts or at least $10,000 in assets may avoid the fees. But E*Trade provides many free and usually unpublicized services, such as asset allocation advice and financial planning. Research tools, praised in reviews, include screen charting and analyst research from seven independent sources. There is a $1,000 opening deposit for cash accounts.