Discount Brokers

Best low-cost online brokers

Investors who choose a broker based primarily on cost no longer have to sacrifice amenities like customer service and high-quality trading tools. TradeKing is among the lowest-cost brokers on the Internet but also earns high marks in other areas. SmartMoney named it the best discount broker overall for 2006 and 2007; the magazine's 2008 review names TradeKing the best online broker in the area of customer service. Kiplinger's Personal Finance magazine's 2008 survey of online brokers also cites TradeKing as having the best customer service, and Barron's reviewers concur, noting that TradeKing professionals communicate with customers in real time via the online TradeKing Community as well as by live chat and phone. TradeKing earns four out of five stars overall in Barron's 2008 review, which names it one of the five best online brokers for buy-and-hold investors and one of the six best for options traders. Consumer Reports rates TradeKing excellent for its trading costs and the range of products it offers, as well as for its customer support.

TradeKing charges a flat fee of $4.95 per trade for trades of any type and 65 cents per option contract. There are no hidden fees, and there is no minimum to open an account, which makes this online broker ideal for those who are just starting to build a portfolio. TradeKing operates online only and offers no banking services. Its online trading and research tools are cited by experts as among the best, especially for options traders.

In the 2008 J.D. Power survey, Scottrade scores highest in convenience, trading charges and trade execution, and it ranks first overall for the eighth time in nine years. Keynote System's Broker Web Transaction Performance Index, compiled weekly, has Scottrade consistently at or near the top for both the speed and success rate of transactions initiated on its website. However, Scottrade is not mentioned in the 2008 review by SmartMoney, and Kiplinger's 2008 review reports only that its staff found this broker's customer service unresponsive, and the representative they spoke to unknowledgeable. Consumer Reports magazine, on the other hand, rates Scottrade's customer support excellent. Barron's 2008 review names Scottrade one of the five best online brokers for buy-and-hold investors but gives the firm only three out of five stars overall, faulting its trading technology and range of offerings.

This online broker's commissions are lower than most, at $7 for most transactions. The minimum balance to open an account is only $500. Scottrade has more than 350 offices nationwide where customers can seek in-person advice, has no account maintenance or inactivity fees, and offers a big selection of NTF (no-transaction-fee) funds, although non-NTF funds incur a $17 commission and broker-assisted transactions cost $27.

ShareBuilder, now owned by ING, is noted for its automatic investing program, which allows investors to take advantage of dollar-cost-averaging by arranging to have a set amount invested weekly, biweekly or monthly. Automatic investments incur a commission of only $4 each. For $12 per month, customers get six free automatic investments, and for $20 monthly they get 20 free automatic transactions. Market orders are $9.95. This program may be well suited to beginning investors, experts say, but they point out that automatic trades are for investments only; all sales are treated as market orders. Real-time trades are $9.95 each. There are no minimum balance requirements, inactivity or maintenance fees, unless you subscribe to one of the monthly plans with a fee, although accounts that have not been accessed in three years will be charged a $25 abandoned account handling fee.

ShareBuilder moves up to second place in overall investor satisfaction in the 2008 J.D. Power survey, but other reviewers give ShareBuilder low marks in other areas. Barron's places it last of the 23 brokers rated in its 2008 review, giving it particularly low ratings for its trading tools and range of offerings. SmartMoney's 2008 review names ShareBuilder worst of the online brokers in two areas, trading tools and banking services.

Zecco wins notice as a low-cost online broker for the 10 free trades per month it offers customers who have at least $2,500 in their accounts. All other trades cost $4.50 each. According to the Zecco website, Zecco claims it can offer free trades because the cost of executing a trade has become very low, and it makes its money, as other online brokers do, on interest income and options trades. There is no minimum to open an account, and there are no inactivity or maintenance fees, although Kiplinger's Personal Finance magazine notes that Zecco charges a $30 annual custodial fee on IRAs. Like TradeKing, Zecco has an online community, ZeccoShare, where investors can compare notes and share ideas.

According to experts, Zecco offers investors low costs for equities trading, but those who want assistance or the latest research and trading tools should look elsewhere. SmartMoney names it the worst of the online brokers in two areas, research and customer service. Barron's awards this broker only 2.5 of five stars, giving it poor marks for its trading technology, range of offerings, research amenities and customer service.