The Best Cheap Online Stock Brokers
The best cheap online stock broker offers a variety of investment options at a low cost. We compared fees, account minimums, and other costs of the cheapest brokerage accounts to find which best suits different investing priorities. While most online brokers have dialed down their costs, we found three that we like more than the competition.
For anyone just starting to wade into investing, Ally requires no minimum investment to start an account, and it offers some of the lowest trading fees. Its online-only platform transfers between devices with ease, making it easy and inexpensive for investors to set up an account.
The only brokerage of our three top picks that operates brick-and-mortar branches, this financial institution has kept offers plenty of useful tools and platforms while also offering traditional resources for in-person help.
This low-cost, high-account value trading platform offers surprisingly low fees if you meet its requirements for account balance and activity. But novice investors won't find the same benefits, or the same simplicity offered by our other picks.
The Best Cheap Online Stock Brokers
Whether you’re new to the stock market or a seasoned investor, choosing a brokerage with low overhead is a smart financial decision: Spending less money on fees means your investments have more room to grow. And while cheap trading platforms may not offer the same level of counsel or market research as a traditional firm, you can still find plenty of tools to make trading decisions smarter and faster.
If you’re a relative newcomer to the stock market, you should look for an account with low costs, plenty of educational resources, and, importantly, a low account minimum. Your best bets are Ally Invest and Charles Schwab. These two brokerages share a lot of price points, and most of the differences between the two are trade-offs. Example: Ally provides access to nearly twice as many mutual funds (around 10,000 vs. 5,000) and charges a much lower mutual fund commission (around $9 vs. Schwab’s $75). Meanwhile, no brokerage can compare with Charles Schwab for exchange-traded funds (ETFs): Over 200 trade commission-free. Conversely, Ally doesn’t offer any zero-commission ETFs.
With those differences in mind, we prefer Ally Invest for new investors due to its $0 minimum to start a brokerage account and because it offers virtual trading. With virtual trading, you can test out strategies before putting your own cash into the mix. Charles Schwab doesn’t offer any equivalent, and has a $1,000 account minimum. Ally also gives you the option to try your hand with individual trades or open a managed portfolio with a little more expert guidance, although managed portfolios require a $2,500 minimum.
Charles Schwab has retained more of a classic brokerage feel through its in-person presence (you can schedule a free consultation with a financial advisor) as well as its more traditional account minimums. And while Ally restricts its trading technology to online platforms, Charles Schwab gives clients an advanced desktop option: StreetSmart Edge. StreetSmart’s claim to fame: Making its platform more intuitive and convenient, based on user feedback about clunkier trading tech.
For more active trading, a higher account balance is par for the course. With Interactive Brokers, you’ll need $10,000 to start an account, but once you do, its other financial demands are incredibly small. Take advantage of the super low price per trade ($1) as well as extremely low margin rates (their highest interest bracket still charges less than 3%). It also offers the choice of fixed or tiered pricing, giving investors the opportunity to choose what makes more financial sense for them — tiered structures will typically benefit high-volume traders.
How We Found The Best Cheap Online Stock Brokers
Your financial goals and your personal investing style will be the two biggest factors in choosing the right brokerage for you. We set out to find the strengths and weaknesses of the cheapest brokerages we could find, but you’ll still have to decide which offers the right combination of savings and services for your needs.
We considered seven brokerages in total: Ally Invest, E*trade, Fidelity, Interactive Brokers, Charles Schwab, Merrill Edge, and T.D. Ameritrade, all major brokerages that have made a name for themselves offering exceptionally low rates. This wasn't a comprehensive list — we focused on major names and newer players that were doing more to disrupt the space. To find the best among them, we investigated their platforms and compared the fine print to see how they stack up in fees, learning resources, and trading technology.
We primarily based our selection on the fees and strictures associated with each company’s brokerage account. Some of the most important: account minimum, account minimum fee, broker-assisted trade commission, monthly activity fee, price per trade, and price per share. Though the numerical difference between two brokerages’ fees can appear small — an extra $2 per trade or a 2% bump in margin rates — those dollars and percentages are still eating away at your investment. We looked for brokers that kept those fees and commissions as low as possible.
Special offers for opening a brokerage account can include a set number of free trades or even cash bonuses for investing above a certain amount. Read the fine print to be sure that these early benefits outweigh later costs, and whether those new client perks align with your investing practices. In other words, don’t be enticed into choosing a broker offering deals on investment products you don’t understand or aren’t ready to use. Since special offers are by definition short-term, we focused on set account pricing. In the long run, those are the savings that will impact your financial goals.
What We Looked For
For the novice investor who wants to start small and spend small, we sought out accounts that have a low minimum balance (the amount you’re required to keep in your account at all times), no minimum activity rules, and as many $0 fees as possible. We also wanted low-cost options for both self-directed trading and investing in a managed portfolio, allowing you to make your first foray into the market as hands-on or hands-off as you like.
But we didn't want to neglect experienced investors, either. For investors who've had time to let investments grow, a low minimum balance probably isn’t a top concern. But putting more money in shouldn’t make your fees swell proportionately. We looked for brokerages that kept fees low for larger accounts — or, better yet, offered more discounts for frequent activity. We were also keen to see a full set of asset options, including advanced investment vehicles like forex and futures.
For any type of investor, a superior investment platform provides an array of research and learning resources, flexible trading options, and a usable interface compatible with most devices.
What We Found
We found a lot of similarities among the different brokerages: Roughly half had the same $4.95 per-trade fee, with most of the rest charging $6.95. All our top picks charge $4.95 per trade, except for Interactive Brokers' $1 fee. Three of our seven finalists had no account minimum, and Charles Schwab will waive its $1,000 minimum with a monthly direct deposit of $100.
Ameritrade and Merrill Edge lost out to Ally for having higher per-trade fees, despite having no account minimums. Both Charles Schwab and Fidelity charge $4.95 per trade and have physical locations and learning centers for investors. But we gave Schwab the edge for its lower account minimum ($0-$1,000 vs. $2,500) and the reviews of its desktop platform.
E*Trade lost points for a high account minimum ($5,000) and high per-trade fees ($6.95), offering the worst of both worlds. For investors who have that much to deposit into an account, we much preferred Interactive Brokers' $1 per trade fee. Even with Interactive Brokers' $0.005 per share fee, a trader would have to buy or sell more than 1,000 shares at a time to exceed E*Trade's fees.
Here's how our top picks stacked up in some of these key areas:
|Brokerage||Account Minimum||Price Per Trade||Per Share Fee||Margin Rates|
*Waived with monthly direct deposit of $100
Our Picks for the Best Cheap Online Stock Brokers
Best for New Investors
Because Ally Invest doesn’t maintain brick-and-mortar branches or run advertising campaigns, it is relatively unknown outside of the trading world. Despite its insider status, Ally does better than most online brokerages at making investing accessible to newcomers. The real welcome mat in front of Ally’s door: some of the cheapest rates in the industry.
With a $0 minimum for independent brokerage accounts, just about anyone can get started investing with Ally. But just because it makes investing approachable for beginners doesn’t mean it isn’t an expansive company; there are plenty of tools and opportunities to expand your investment horizons. Ally offers all the same major investment vehicles as other brokerages — stocks, options, ETFs, bonds, mutual funds, forex, futures — as well as a host of accounts that fall under a managed portfolio.
These portfolios are comprised exclusively of ETFs — investment bundles that trade on the open market like stocks. They offer similar diversification to mutual funds, but typically carry lower expenses. A small percentage of your total investment is typically held in cash, but the exact amount will vary according to your described risk tolerance.
In addition to small fees for holding the ETFs themselves, Ally charges a 0.3% advisory fee. That's a pretty middle-of-the-road percentage in comparison with other full-service brokerages but slightly higher than companies that offer only managed portfolios. We discuss these robo-advisor companies at the end of the review.
In the first half of 2017, TradeKing made the move to Ally Financial, officially becoming Ally Invest. The transformation of TradeKing accounts wasn’t totally seamless, but today they’re functioning normally. What’s more, the merger created a stronger trading platform that improved the functionality of the two original systems, beefing up the tools and technology.
Ally boasts an aesthetically pleasing and easily navigable site, but buries all the hard data that we were craving. From the easy-to-reach pages, scout out fine print hyperlinks promising “More Details” to find consolidated information about fees, investment vehicles, and account types. This sparsity of upfront information carries over into their light touch on education and research. While having more in-house resources would improve the overall client experience, plenty of information can be found elsewhere on the internet. A couple good resources? Investopedia and The Simple Dollar.
Just about every basic fee charged by Charles Schwab goes toe-to-toe with Ally. The price between the two does jump in certain instances — broker-assisted trades go up by $5 and mutual fund commissions go up nearly $70 — and while Ally lets investors start a brokerage account with any amount, Charles Schwab requires $1,000 to start. However, the breadth of tools and resources available with Charles Schwab does a lot to justify the extra expense.
Schwab puts extensive information on their accounts and products front and center. Plus, easily access both product info and wider investment education through the learning center. And while Ally Invest makes it difficult to track down brass tacks in the name of a friendly user-interface, Schwab hits you with its full store of counsel and breaking news. Not only does the firm provide access to independent research, it also publishes relevant in-house research.
Research and ratings both live inside Charles Schwab’s desktop trading platform, StreetSmart Edge, the upgrade of Schwab’s flagship platform StreetSmart. If you need personalized settings and advanced features, StreetSmart Edge provides both in spades. You’ll just have to learn how to use it. For streamlined trading and market insights on the go, there’s also a web-based platform, Trade Source. Investors that are new to the game may find the web-based option more accessible.
Like Ally, Charles Schwab offers a managed portfolio option, Intelligent Portfolio, available for a large number of managed account types. Unlike Ally, not to mention every other managed account we looked at, it charges no advising fees. Instead, Schwab makes money by holding some of the underlying assets of the accounts. The only fees associated with the account come from the investments, and while that percentage increases to a substantial amount (from 0.07% to 0.21% as risk builds), it is still lower than most. The $5,000 account minimum for Intelligent Portfolio accounts is, however, higher than Ally’s.
Still, if the security of investing with a solid name in finances appeals to you, Charles Schwab offers a lot for your money. And Charles Schwab is finding even more ways to make you feel secure investing your money with them. Automated financial advisors are the wave of the future, but many people don’t feel comfortable putting their life’s savings in the digital hands of a computer. Charles Schwab has developed a half-and-half solution: A hybrid service, Intelligent Advisory puts both financial professionals and financial algorithms to work. A nice little solution, so long as you have $25,000 to plunk down.
Charles Schwab offers a deluxe set of services, but depending on the account you choose, you don’t have to invest a correspondingly huge amount. Opting for an independent brokerage account gives you access to the resources of a traditional, full-service brokerage without putting down a traditional amount.
Best for Active Investors
Choosing a company with a variety of investment products is important if you plan on trading more than just stocks. All three of our favorite companies offer stocks, bonds, mutual funds, ETFs, and options trading. But if you’re particularly interested in more advanced investing, like options, Interactive Brokers is the way to go. The company also has incredibly low interest rates for margin trading: With an upper limit of 2.66%, IB’s rates are about a third of what’s charged by every other brokerage we looked at. For pure trading and competitive prices, no other brokerage comes close.
Interactive Broker’s account structure rewards the active investor. In fact, the two elements that make IB a bit unwieldy for new investors make it a perfect tool for the experienced: Once you meet the hefty minimum account balance — $10,000 — the rest of IB’s demands on your wallet are light. And the relatively high $10 monthly activity fee is charged only if your trades don’t rack up at least $10 in commissions. With the tiny $1 per-trade fee, that means you’ll need to make ten trades every month or pay the difference, e.g. six trades will leave you with a $4 activity fee.
If you are savvy investor who also happens to be under 25, you can open an Interactive Broker account with a reduced minimum balance — the required deposit is just $3,000 — and the monthly fee bumps down to $3. For an IRA, the minimum deposit is $5,000.
However, we didn’t love everything we saw about Interactive Brokers. Back in 2012-2013, the company was fined for several violations relating to the management of futures market funds. The result was a pair of fines totaling $925,000. Because the fines occurred several years ago, and because futures trading is a fairly niche investment area compared to stocks and funds, we don’t think this is enough to overrule Interactive Brokers’ overall cheap costs. However, if you’re planning on doing a substantial amount of futures trading, be aware of this mark on their record.
Interactive Broker’s incredibly rich platform offers trading technology advanced enough for professional day traders. Choose from the web-based trading platform WebTrader and the more advanced, downloadable platform, Trader Workstation. Both are included for Interactive Brokers clients at no additional cost. Serious traders will gravitate to the Trader Workstation’s more in-depth features.
Trader Workstation also comes with a steep learning curve. Navigation is far from intuitive as tools are located in discrete sections. However, it is also customizable, allowing you to group together the resources you make frequent use of and hide the ones you don’t. The interface, like the rest of an IB account, only benefits experienced traders. However, IB has recognized the learning gap. To supplement the educational tools on Traders' University, IB has introduced a layout library (choose from pre-made setups and templates for different trading strategies) as well as an AI assistant. IBot can answer plain-English questions but, like any other voice-activated helper from Siri to Alexa, it has its limits.
Did You Know?
The landscape of online investing is changing.
Financial institutions have gone through a lot of millennial growing pains. The culminating act: Several companies cannibalizing several others in the past year. For everyday investors, these acquisitions have little impact. For instance, T.D. Ameritrade gobbled up Scottrade, but Scottrade accounts are slated to transform painlessly into Ameritrade accounts in Q1 of 2018, to the extent that Scottrade is still enrolling new clients. The more major change is the movement away from traditional brokerages and toward increasingly automated investing options. Enter robo-advisors.
There’s an app for that.
The inexpensive trading platforms established by the likes of Scottrade and E*trade make it easy to invest by reducing or eliminating fees that make traditional brokerage firms elite. They also appeal to a younger generation of investors.
They are not, however, the newest rich kid on the block. A slew of robo-advisor investment apps have materialized within the last five years, with marketing and functionality geared toward a generation that has a job (yay!) and some money (yay!) but doesn’t know how to “adult.” A notable example, Wealthsimple, has a slogan that says it all: “Investing on autopilot.”
Hands-off investing as offered by Wealthsimple (or other robo-advisors like Wealthfront and Betterment) appeal to a demographic used to automated services. Simply plug in your time frame and risk tolerance and an algorithm takes it from there. A nice side effect of AI investing - even lower fees. Wealthsimple and Betterment both allow you to open an account with $0 down; Wealthfront asks for $500. Wealthsimple charges an annual 0.5% advising fee; Wealthfront and Betterment charge just 0.25%.