Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It may not have not been reviewed, commissioned or otherwise endorsed by any of our network partners or the Investment company.
Updated on Thursday, October 1, 2020
The easiest way to start investing from home is through an online broker. A broker’s main job is to buy and sell stocks, bonds, exchange-traded funds (ETFs) and other securities that make up your portfolio. When choosing an online broker it’s important to consider your investment experience and style, your trading needs and your financial goals.
Our investing experts have been tracking the fees, features and capabilities of dozens of online brokerage accounts since January of 2019. Beyond that, our team of in-house experts consists of both financial analysts and journalists who collectively have more than 20 years of experience across the investment industry, encompassing financial advisory services, asset management, financial journalism and investment banking.
Our Thoughts on the Market
Investing is fraught with risk, as indicated by recent volatility in the markets due to the COVID-19 crisis. History shows that events in the capital markets are beyond your control as an individual investor, and it’s almost certain this will continue to be the case in the future. During these uncertain times, we’d like to remind our readers to keep an eye on the things that they can control, such as broker fees and risk exposure, when picking the right online brokerage account to fit your needs.
Again, there are no guarantees when it comes to investing and the right asset allocation will depend on both your unique financial goals and your individual risk tolerance as an investor. No matter what your goals are, our team of financial experts is ready to help you select the best fit for you from a selection of dozens of the most popular online brokerage accounts on the market today.
Start by checking out our picks for the top brokerage accounts below, which we’ve selected for a variety of investor types. Regardless of whether you’re just starting your investing journey or are a seasoned investing veteran, there’s a brokerage account out there that will suit your needs. Check out our rankings below.
Summary of MagnifyMoney’s Best Online Brokers for October 2020
- Best Overall Broker – TD Ameritrade
- Best Broker for Beginners – Vanguard
- Best Broker for Experienced Traders – Interactive Brokers (IBKR)
- Best Broker for ETFs – Charles Schwab
- Best Broker for Options Trading – Ally Invest
- Best Broker for Mutual Funds – Fidelity
- Best Broker for IRAs – E*TRADE
Read below to learn more about online brokers and access our FAQs
TD Ameritrade: Best Overall Broker
|Why we picked it: TD Ameritrade pairs $0 equity trades with a high-quality platform that aims to target investors of all types, regardless of whether you’re a beginner or an investing veteran. There is no minimum deposit requirement, which makes this broker highly accessible, and its ThinkorSwim trading platform provides an industry-leading tool for both researching and executing advanced trading strategies.|
What to watch out for: Investors who are interested in futures trading should be wary of the steep $2.25 per contract fee, which is well above the competitor average (Schwab, Interactive Brokers and E*TRADE all fall below the $2.00 mark).
Vanguard: Best Broker for Beginners
|Why we picked it: Vanguard has a simple, intuitive platform that’s well-suited for beginners and passive investors who don’t plan on trading frequently and want to minimize their investment fees. Vanguard’s collection of low-cost index funds, which include its Admiral Shares lineup of funds, are among the most popular and well-known funds on the market.|
What to watch out for: Vanguard imposes a $20 annual maintenance fee on customers who don’t opt for electronic statements. The broker also requires a hefty $3,000 minimum investment in its standard mutual funds and $50,000 for actively managed funds, raising the buy-in significantly for investors seeking sector diversification. Vanguard also does not offer futures trading on its platform.
Interactive Brokers: Best Broker for Experienced Traders
|Why we picked it: Interactive Brokers (IBKR) caters to advanced investors by providing complex trading and analytical tools and one of the most diverse selections of investment options on the market. IBKR is one of the few online brokers that offers exposure to a full suite of investment vehicles that many other online brokers won’t offer, including forex; exchange of futures for physical (EFP); hedge funds; foreign stocks and bonds; and futures.|
What to watch out for: There is a $20 minimum yearly trade commission required, so it’s not well-suited to someone seeking a passive investing approach. Some resources are also only available to IBKR Pro customers, and its fee structure is one of the more complex ones on the market.
Charles Schwab: Best Broker for ETFs
|Why we picked it: Charles Schwab offers one of the largest selections of more than 2,000 commission-free ETFs that cover more than 110 Mornigstar categories. Not only are they covered across a broad range of asset classes, but Schwab investors have access to Schwab Intelligent Portfolios, a robo-advisor platform that automatically builds and rebalances a diversified portfolio of ETFs based on your investing goals.|
What to watch out for: Non-Schwab Mutual Fund OneSource trades are up to $49.95 per purchase. Additionally, the interest rate on its cash sweep account is relatively low, and the account requires the user to manually transfer their cash if they’d rather hold it in a money market.
Ally: Best Broker for Options Trading
|Why we picked it: Ally offers one of the lowest contract fees of just $0.50 per option contract. The broker also features intelligent options trading tools that allow users to forecast theoretical action values and help them identify the best options strategy based on their parameters.|
What to watch out for: Ally charges $9.95 per trade for no-load mutual funds and does not have a collection of no-fee mutual funds that many of its top competitors feature. This makes the broker less than ideal for a passive investing strategy.
Fidelity: Best Broker for Mutual Funds
|Why we picked it: Fidelity offers zero expense ratio index mutual funds directly to its customers. Unlike many of its competitors, there is no minimum to invest in Fidelity funds. Fidelity offers access to more than 10,000 mutual funds from Fidelity and other companies across a variety of sectors, styles and assets, with thousands of no-transaction-fee mutual funds available.|
What to watch out for: Investors seeking to trade in futures contracts will not have that option through this broker.
E*TRADE: Best Broker for IRAs
|Why we picked it: Beyond the typical Roth and Traditional IRA options offered by many competitors, E*TRADE also features specialized IRAs. The broker offers an IRA tailored to minors who want to get a headstart on their financial future. There is also the E*TRADE CompleteTM IRA, which is geared toward those who are 59 ½ and older and not only eases the process of taking required minimum distributions once you hit retirement, but also doubles as an excellent bank account, offering free checking, online bill pay and even a debit card. E*TRADE also has designated financial consultants that can help manage your portfolios and give retirement advice.|
What to watch out for: Not all accounts are eligible for cash management features.
Why Trust Us?
At MagnifyMoney, it is our mission to inform our readers about the best financial opportunities out there. Our insights have been cited by top financial publications including MarketWatch, CNBC and the Wall Street Journal.
Our dedicated team of financial experts spent dozens of hours grading each brokerage account on its features, including fees, minimum balance requirements, analysis tools and investment vehicles. Our method of evaluation not only compared features and cost, but also took into consideration the type of investor using these brokerage accounts.
Even though they did not make our top picks, we also considered the following brokers in our analysis:
How do brokerage accounts work?
Online brokerage accounts allow retail investors to access the financial markets without the need for a stock broker to act as a middleman. Online brokerage accounts are typically offered through licensed brokerage firms but many banks, money managers and registered investment advisors (RIAs) offer their own accounts.
One of the great benefits of online brokers is that they make investing highly accessible to the average investor, rather than limiting it to the realm of those with lots to invest. Brokerage accounts allow investors to buy and sell assets like stocks, mutual funds, ETFs, options and bonds.
Brokerage accounts can come in many forms but all provide the same basic function: They house your cash and investments and allow you to buy and sell financial assets. Here are some of the most common investment account types:
- Employer-sponsored retirement accounts: These include 401(k) plans, SIMPLE IRA plans, SEP plans and pension plans (both defined-contribution and defined-benefit) offered through your workplace.
- Individual Retirement Accounts (IRAs): This includes both traditional IRAs and Roth IRAs offered through most large financial institutions including banks, credit unions and large mutual fund companies.
The benefit of retirement accounts like 401(k) plans and IRAs is that they allow individuals to invest on a tax-advantaged basis. The tax treatment will differ depending on whether contributions are made to a traditional or Roth account, but in almost all instances, retirement accounts offer individuals some form of tax relief. The trade-off comes in the form of both deposit and withdrawal restrictions.
Individual taxable brokerage accounts: Individual brokerage accounts are offered by a number of financial services companies, including banks and licensed brokerage firms. These allow you to trade securities within your own private account.
Joint brokerage accounts: Joint brokerage accounts function in the same way as individual brokerage accounts and are offered through the same financial companies. However, joint brokerage accounts allow for shared ownership by two or more individuals.
Personal brokerage accounts operate similarly to IRAs, but offer no real tax benefit, so your account earnings may be subject to interest or capital gains taxes. However, personal accounts typically feature no deposit or withdrawal restrictions, allowing investors greater freedom when using their personal brokerage account.
What Should I Know About Broker Fees?
When shopping for the best online brokerage account, it’s important to keep costs like commissions and fees to a minimum, as these will eat into your total investment return over the long-run. Here are a few fees you should always be aware of when you’re choosing an online broker:
- Brokerage fee: Brokerage fees can be charged annually or monthly for the overall maintenance of your account. Many of our top brokerage picks do not charge brokerage fees.
- Transaction fee: Also referred to as trade commissions, these are fees charged by the broker to complete your trade. Some firms charge a flat fee per trade while others charge per share being traded. It’s important to remember that for each investment you take a position in, you’ll likely be charged twice in terms of commissions: 1. to buy the asset and 2. to sell the asset at a later date. In a bid to increase competition, many of our top brokerage account picks have decided to waive trading commissions altogether.
- Management Fee: Sometimes called an advisory fee, some brokers may charge you for a percentage of your total assets under management. This is typically charged in exchange for financial advisory or robo-advisor services in your brokerage account.
Amount Minimum to Open Account
How do I choose which online broker is right for me?
The best brokerage accounts offer low fees and commissions while providing plenty of investor tools and offering a wide variety of no-fee ETFs and mutual funds.
Brokerage accounts can vary considerably in terms of features and prices, so it’s important to consider your unique investing style and financial goals when choosing an online broker. We’ve outlined the key features to look for when shopping around for a brokerage account:
Fees: It’s important to compare the fees levied by each firm in terms of both management fees and trading commissions. Many firms will charge different fees depending on whether you’re trading equities or options. It’s important to take these into account within the context of your own experience as an investor and the securities that you intend to trade most. Keep in mind that if you’re seeking extra guidance or want specialized trading tools beyond what’s available to the average investor, certain brokerage firms may be willing to provide those in exchange for a higher management fee.
Promotions, free trades and account opening bonuses: Many online brokers will try to entice you to sign up by offering promotions in the form of free trades, cash bonuses or even gifted stocks. If you’re looking to open a new brokerage account and narrow your choices down to a few key brokers, it may be worth comparing their bonus offers to see which provides the most compelling offer.
This can be especially enticing for those who intend to invest large amounts, as these promotions can become more lucrative the more you deposit. Keep in mind that most bonus offers will require some level of minimum deposit or trading activity for you to be eligible. Many will also set time limits in which you may qualify, so make sure you read the full terms of these offerings when picking a brokerage account on the basis of its bonus offer.
Investment products: Many large brokerage firms offer their own line of no-fee ETFs and mutual funds, each with its own set of investment strategies, market exposures and specialities. This is important if you’re trying to obtain the greatest level of diversification at the lowest cost.
Also keep in mind that if you’re trying to get access to specific product lines offered through certain brands like Vanguard’s Admiral Funds, Blackrock’s iShares or State Street’s SPDR ETFs, you may not have access or will have to pay a higher fee to gain access to these investments, depending on which online broker you choose.
Additionally, not every online broker allows you to trade every type of investment. For example, some online brokerage accounts may limit or restrict trading in certain specialized assets, like futures contracts, forex or structured products. If you’re a sophisticated investor who’s interested in gaining access to a wider variety of investments beyond just stocks and bonds, it’s worth checking what types of investments are permitted before committing to an online broker.
Resources: Many brokerage accounts offer services beyond filling buy-and-sell orders, and some offer different tiers of service for those willing to pay more or commit a larger amount in cash. You also may want your brokerage to be your one-stop shop for banking or planning services.
Some other features that online brokers may offer in addition to trading include:
- Banking services like checking, savings, money market accounts, CDs, debit cards and credit cards
- Retirement planning
- Managed investing or private client services that invest money on your behalf
- Portfolio analysis
- College planning
- Tax planning and advice
- Investing education
- Career advice
- Estate planning
Account minimums: Online brokers may differ in the size of the minimum account opening deposit required. If you’re just starting off or don’t have a lot to invest, you may consider shopping for online brokerage accounts with low or zero minimum deposits. Conversely, those willing to deposit large amounts may be able to obtain greater tiers of service through brokers that require high account minimums.
Much like certain checking or savings accounts, some brokers also may require a minimum account balance to avoid service charges. In some cases, brokers will also require minimum monthly deposits to avoid this charge. It’s worth looking into specific brokerage account policies if you intend to invest lower amounts to avoid paying unnecessary surcharges.
Trading software and research tools: If you trade frequently or deal in complex investments, you’ll want to take note of each brokerage account’s investing platform, any specialized software they may offer and how much access they provide in the form of proprietary or third-party research reports and information published by industry experts.
Some brokerage firms may allow you to “tour” their online trading platforms and run a simulated trade so you can get a feel for the experience. If you plan on using your phone to trade on the go, it’s also worth taking a look at the broker’s mobile app to make sure it suits your needs.
FAQs: What should I know about brokerage accounts?
Once you have a brokerage account, you’ll need to deposit money into your account. Online brokers make it easy to transfer funds from your bank account electronically, but many brokers also give you the option of mailing in a check or wiring money. Some well-known brokers like TD Ameritrade, Charles Schwab and Fidelity even have branches where you can deposit your checks in person.When you’re ready to trade, you’ll have a few different options in terms of the orders you can place:
- Market order: Market orders typically offer the fastest execution for investors who want to buy or sell immediately. This order type directs the broker to buy or sell a security at the current market price. It may not always offer the best price though.
- Limit order: A limit order directs the broker to buy or sell a security at a specified price or better. Limit orders give you the most control over the price at which your transaction is executed but take longer to execute depending on where the security is trading. If no counterparties are willing to trade at the price specified, the limit order will sit unfulfilled until the specified price becomes available or the order expires.
- Stop-order: A stop order directs the broker to buy or sell a security once the market price meets the specified “stop” price, or better. Stop orders are similar to limit orders in that they allow investors greater control over where the trade is executed, but unlike a limit order, which allows counterparties to view the price at which you’re willing to transact, a stop order is not viewable by counterparties and automatically converts into a market order once the specified stop price has been reached. Investors typically use stop-loss orders to guard against potential losses.
The next step is calculating how many shares you can buy or sell. This will be based on the current share price minus any trading fees. It’s important to realize that trades aren’t automatic and the actual share price might change from the time you place your order to the time your trade is completed. Your final order can be impacted by factors such as:
- Size of order
- Availability of shares
- Time you place the order
Generally, if your order isn’t huge and is for stocks traded on a major exchange (meaning stocks are readily available for purchase), there shouldn’t be a delay. If you place an order outside of normal trading hours, your order won’t be executed until markets open. Market volatility can cause after-market movements that impact the price of a share at opening, which is called a gap. Trading after hours could mean that you’re bound to a price you weren’t expecting.
You can trade more than just stocks with most online brokers. Given your financial goals, diversifying your investments can be a way to balance your portfolio and protect against losses. Here’s a list of securities types that most brokerage accounts allow you to trade:
Some brokerage firms offer more niche investment opportunities including forex and EFPs.
How much you’ll need to start investing will vary depending on which broker you choose and the type of brokerage account you’re opening. There are plenty of online brokerage accounts with no account minimums, lowering the barriers to entry to start investing for the future. Many 401(k) accounts can be set to automatically allocate your paycheck to mutual funds that your workplace plan allows for, eliminating the problem of minimum purchase amounts.
In theory, all you need to start trading is enough funds to cover the cost of a single stock and the trading commission, but you’ll want to take into account the current market price of the security you want and how big of a position you want to take. Keep in mind that trading fees incurred will eat into your total return.
Most online brokers offer exposure to international markets through mutual funds and ETFs that specialize in international investments. You also may be able to identify specific stocks that give you direct exposure to foreign companies in both over-the-counter (OTC) and American Depository Receipts (ADR) investments.
Keep in mind that international investments may command higher trading fees and additional risks and tax concerns that differ from trading domestic securities.
Any investments you undertake are subject to both gains and losses in market value. In other words, there are no guarantees that you won’t incur losses on either principal or interest when it comes to investing in any asset. It’s important to consider your own risk tolerance relative to your portfolio and overall investing strategy.
If you’re worried about the solvency of your broker or the funds in your brokerage account, know that all brokerage firms registered with the Securities and Exchange Commission (SEC) are also members of the Securities Investors Protection Corporation (SIPC), a non-governmental organization that insures brokerage accounts in a manner similar to the Federal Deposit Insurance Corporation (FDIC). In the event of broker insolvency or misappropriation, the SIPC insures your account for up to $500,000 per person (including a $250,000 limit for cash only).
It’s important to note that the SIPC will not cover any losses in market value on your investments, any investments in mutual funds directly held by the brokerage company or brokerage accounts held with non-SIPC member institutions.
Many online brokers offer additional resources and tools for researching, investing and financial planning, in addition to custodial and trading services. Often, brokerage firms will offer greater access or premium services for individuals willing to deposit more money or pay additional management fees.If you’re interested in premium features like personalized financial planning, in-depth investment education and technical and fundamental investment analysis tools, it’s a good idea to inquire with the firms you’re considering when shopping for the best brokerage account to see whether they offer these resources.