June 2007
Online brokers
Better prices, more services
Online brokerage firms have had a hard time living down the tech-stock bubble of the late 1990s and the overblown expectations
they seemed to encourage. A memorable TV ad of that era featured a fictitious tow-truck driver whose stock gambles bought
him his own private island.
But even if you are not a driven stock trader, now might be a good time to consider opening an online brokerage account. Competition among the surviving firms has led many of them to reduce their fees and commissions considerably and add a range of other low-cost financial services.
Eight of the 19 online brokers the Consumer Reports Money Lab recently surveyed offered stock trades for under $10, and another six dropped the commission below $10 if you met their trading-activity or account-size requirements. Several charged a flat $5. More than half of those 19 brokers offered at least 1,000 mutual funds that you could buy or sell without a transaction fee.
Aside from trading, a major appeal of online brokerage accounts is that they give you a way to track your investments, including stocks, bonds, and mutual funds, at a single Web address. You can then make adjustments to your portfolio whenever you want, with just a few clicks and at a minimal trading cost.
The major online brokers are also introducing other services meant to appeal largely to the average investor. The growing menu includes free stock research, no-fee tax-advantaged retirement and education accounts, free checking, ATM access, automatic bill paying, and credit cards with low interest rates.
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.
In our Ratings, trading costs represent about half the score. That's why Vanguard ended up at the bottom of our list. 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.
But even if you are not a driven stock trader, now might be a good time to consider opening an online brokerage account. Competition among the surviving firms has led many of them to reduce their fees and commissions considerably and add a range of other low-cost financial services.
Eight of the 19 online brokers the Consumer Reports Money Lab recently surveyed offered stock trades for under $10, and another six dropped the commission below $10 if you met their trading-activity or account-size requirements. Several charged a flat $5. More than half of those 19 brokers offered at least 1,000 mutual funds that you could buy or sell without a transaction fee.
Aside from trading, a major appeal of online brokerage accounts is that they give you a way to track your investments, including stocks, bonds, and mutual funds, at a single Web address. You can then make adjustments to your portfolio whenever you want, with just a few clicks and at a minimal trading cost.
The major online brokers are also introducing other services meant to appeal largely to the average investor. The growing menu includes free stock research, no-fee tax-advantaged retirement and education accounts, free checking, ATM access, automatic bill paying, and credit cards with low interest rates.
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.
In our Ratings, trading costs represent about half the score. That's why Vanguard ended up at the bottom of our list. 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.
