The Best Online Brokers

In its June issue, Consumer Reports rates the top online brokers. In the article, they give some advice on who may or may not want to use an online broker:

If you are the kind of investor who makes two or three stock trades a month at most and adds steadily to your core mutual fund holdings, our online broker Ratings can help you find a worthy online broker. If you need a lot of hand-holding, you might be much happier sticking with a traditional full-service broker. But if you're trying to cut the costs of buying and rebalancing your investments, the low prices offered by online brokers are appealing.

I've used online brokers for years (to hold my stocks, my index and other funds are with Vanguard), and I have thoughts on several of them. More on that later.

Next, they get to the ratings of the brokers. They rated the brokers based on the following criteria:

• Trading costs (half of each firm's total score)
• Minimum trade fee
• Each broker's mutual funds program
• The number of no-transaction-fee funds available
• Banking and asset-management services
• Free research and education tools
• Customer support

Given these, here are their top five:

• Firstrade Securities
• E*Trade Financial
• TradeKing
• Charles Schwab
• Scottrade

My take on each of these:

1. Never used Firstrade and don't know anything about them.

2. I've been a long-time E*Trade user. If they are #2, the rest of the lot must really stink.

3. Never heard of TradeKing.

4. I used to have an account with Charles Schwab, then their fees got so high I went to E*Trade and TD Ameritrade. Now they've lowered their fees (though they and E*Trade have the highest fees in the top five), so maybe I should consider them again.

5. I've never used Scottrade, but have heard great things about them.

Other notables to comment on:

1. TD Ameritrade was #7. You know what I think of them.

2. Fidelity is #11. My company uses them for our 401k and I invest in their funds -- I don't buy stocks through them. They are too expensive.

3. Vanguard was dead last. As you know, Vanguard is a favorite of mine for index funds (as well as other mutual funds) but I agree that they do stink as a broker. Here's how Consumer Reports put it:

Apparently its low-cost mutual-fund philosophy does not carry over to the brokerage business. Vanguard's basic trading fees were the highest we surveyed this year, at $25. Vanguard's brokerage might be an OK choice if you do very little stock trading and already have a good chunk of your money in its mutual funds because its scores for research and asset management were above average.

Strangely, they listed Vanguard's customer support as average. This is surprising since I've always seen Vanguard rated highly in this area. Maybe it's because the funds side of Vanguard is managed differently (different part of the company) than the stock side.

Comments

[Dan]

I have a Charles Schwab account. Actually, I have a "regular" IRA, a ROTH IRA, a regular IRA for my wife, a general "clearinghouse" trading account that I use mainly for transferring deposits to my IRAs and for setting up automatic investing, and two 529 accounts for my sons...all through Schwab.
Because my "household" balance (total for all 6 accounts) exceeds $50,000, I only incur fees for trades ($9.95/trade) and $25.00 annually for each 529 account.
That's it.
I've been extremely pleased with my experience with Schwab.

[Barry]

I looked at Scottrade a few years ago. My investments are a mixture of individual stocks and mutual funds, both index and actively managed. A number of the actively managed funds I own were not available through Scottrade, so I would've had to sell those funds in order to transfer the account. For me, mutual fund selection is pretty important. (I have Schwab, which is pretty good. I've heard E*Trade is better.)

[Hawkmoon Nine]

I had Scottrade for a number of years, they were good, but not great. I now use Banc of America (yes Banc and not Bank) for a few reasons:

1. BofA has some long hours on their customer service (including on weekends), I've had nothing but great experiences with them.

2. Dividend reinvesting. BofA has it (this was the reason I switched).

3. Fees. It says $14 a trade, but that's if you don't have any other accounts with BofA, Depending on the accounts and $ you have, you can pay Zero for trades.

4. For people who already have BofA accounts, it is a great convenience to have you brokerage with them (you can use it as a sweep account and earn 4.4% or so interest on your cash).

[Daniel]

I have my ROTH IRA with Firstrade. I also have a normal brokerage Scottrade account. They are basically the same except for one important point. Firstrade does free dividend reinvesting. This is a very important feature for me. I like the user interface and better research tools of Scottrade, but love the drip of Firstrade. Firstrade is great at keeping the cost down, but they could stand to work on their reporting and research. If you are looking for the best place to open a cheap, but reliable account Firstrade is the way to go. I have given a couple of accounts away and along with 50 bucks to get them started in the world of investing. I just recommend they buy an index mutual fund, so they don't have any fees.

[Jim's Cash Back Ideas]

I second the surprise on E*Trade's #2 status. I had an account with them for 9 years, and cancelled it a few months back. It seemed like every time I turned around, they were dinging me for another junk fee. Their favorite was the $40 "maintenance fee".

The other thing that irritated me about E*Trade was that they would coerce you into doing other things if you wanted to avoid their junk fees. For example, I would either have to be forced into trading more frequently, take money out of my OSA to their lower-yield brokerage account to maintain a minimum balance, or open yet another account at E*Trade Bank. As far as another account with them goes, I wasn't about to give E*Trade another angle to coerce me with. Finally I had had enough, and just closed the brokerage account.

I've recently opened an "Investor Checking" combo account with Schwab (pays 4.25% APY).

FMF ... How long ago did you have a brokerage account at Schwab? Looks like they lowered their fees back in July 2006:

http://www.schwab.com/public/file?cmsid=P-1036363&refid=P-1830301&refpid=P-1778106

Any other fees you think they haven't addressed yet, but should?

[FMF]

It's been YEARS since I had an account there. Maybe 5-7 years.

[Eric G.]

E*Trade is garbage. I've been using Ameritrade and have never had a problem. But just recently opened an account with TRADEKING and they have been excellent. By far the lowest trade costs. If anyone wants to open an account there, please contact me and I can send you a referral. Thanks.

[Jon N]

I while back I was looking for a new broker, and for some reason had a bias against using one of the big banks. But in the end, because I do my banking there, I chose to use WellsFargo, and I have been pleasantly surprised. The fact that I bank there makes everything go really smoothly (transferring money, etc), and I guess Consumer Reports is using baseline pricing, but if you have some assets (25K or more I think), you get big deals on trades. In fact, I get _free_ trades (up to 50 per month)! There online tools may not be the best, but I didn't find E*Trade to be much better.

[tinyhands]

I've been pretty happy with E*Trade over the past year and half that I've been with them. As with Dan@Schwab, I have multiple accounts with them so my total balance is over the $50k limit to avoid extra charges and I get $9.95 trades.

They've finally opened up a local brick & mortar office here in Houston, though I haven't been in there yet (no reason to go in).

[Livingalmostlarge]

Surprisingly I've used firstrade for about 5 years now. Nice online broker. Great actually. DH loves everything about them. I use them for our Roth IRAs.

have anyone of you guys used www.zecco.com?? i think that is a great $0.00 per stock trade!!! any ideas

[Brandon J]

I've used Ameritrade (TDAmeritrade) since 2000. At the time, only E*Trade and Ameritrade were heavily reported on. I went with Ameritrade because they had access to all stocks/mutual funds at the time. For the type of investor I am (I only buy stocks, never sell) I think sharebuilder or a discount broker would be better.