Online Discount Stock Brokers – Compare and Review

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Finding information for online stock brokers isn’t easy. Every company is unique and the important things aren’t always obvious. To complicate things even more, companies that review brokers provide contradictory comparisons. It’s difficult to come to any definite conclusion on which broker is the best. I’ve tried to be objective and pick the best brokers based on a broad range of factors. The research also made it clear that different brokers are better for different kinds of trading.

To make this concise there are some companies I deliberately left off. The three reasons most companies didn’t make the list is that they 1) didn’t have a mature offering 2) they weren’t technically online discount brokers 3) They were so close in price and offering to other players that including them would have been redundant. For example, Ameriprise is not on the list because they aren’t a true discount broker. They are more interested in using financial advisors instead of individuals trading. Another one I left off is BuyandHold.com due to their oversimplified offering. Lastly, there are many companies I left off because their pricing all hovered around $19.95/order and their offering was very close to Wells Fargo or Vanguard.

This list is a sample of unique discount stock brokers.


Best All Around Winner
TradeKing Online Stock Trading Review


Overall TradeKing Rating

Five star rating


Pros:

  • Very low online trading cost $4.95
  • Lowest broker assisted trades at $4.95
  • No minimum balance required
  • Lowest amount of fees compared to other brokers
  • IRA friendly with no maintenance fee.
  • Trade Stock, Options, Mutual Funds, Bonds, and CDs
  • Top rated website for usability.
  • Generous interest rate on cash balances
  • Best interest rates on margin accounts for small and medium accounts
  • Full suite of investing tools
  • No gimmicks or subscriptions to get the best price and service

Cons:

  • They are lower on their cash balance interest rate than Sharebuilder’s money market sweep. But it’s only by 0.7%.
  • For accounts with $1 Million+ OptionsXpress and Fidelity’s Margin interest rate is 5.25% instead of TradeKings flat rate of 7.25%. If you have less then a million dollars in your account TradeKing smashes the competition in their margin interest rate.
  • If you trade heavily with options they are second place to Zecco’s price.
  • No checking or debit card.

 

 

OptionsHouse - Low Cost Leader
Absolute Lowest Cost (Stocks & Options): OptionsHouse.com

Only $2.95 for stock trades and $9.95 flat rate for options (no additional contract fees). This is by far the best pricing on stock trading online. The best part is that they are backed by professonal grade investment tools. There are no maintenence fees, volume penalties, low account fees, and broker assisted trades are only $2.95. It took a little digging but they support bonds and mutual funds in addition to stock and option trading. This is the best deal I’ve seen in a long time. Visit OptionsHouse | See Full Comparison

Update: Get 100 Free trades when you open an account today. Click Here to Redeem Offer

 

optionsxpress
Low Cost with Powerful Trading Tools: OptionsXpress.com

Specializing in option tools and eductions as well as stocks, futures, mutual funds, bonds, ETFs, and SSFs. They are very competitive on pricing across the board with ultra low cost on option trading. No unexpected fees and no maintenance fee on IRAs or any other account. No extra cost for broker assisted trades, webinars, or tool center. | See Full Comparison

 

Sign up for Zecco today!
Low Cost with Forex Trading: ZECCO

Update:Zecco just added Forex trading. With Zecco there are no minimum balances to open an account. Stock trades are only 4.50 a trade. Their fees are minimal or non-existent with the exception of a $30 annual fee on IRA accounts. Signing up for an account online has been streamlined and is as easy as any other broker. To get 10 free trades a month you must make 25 trades or have a $25,000 minimum balance. | See Full Comparision

 

Long term stock investing:SOGOINVEST.com

Only $3 in and out for stock purchases. No maintenance fee on IRA or any other accounts. Allow fractional share purchases, automated stock purchases investing, and dividend re-investment. The only downside is a $2,500 minimum investment.

 

Best mid-range broker: Scottrade.com

Get Three Free Trades with Scottrade Code: QXEH0544
This is for the best broker that is in the middle between Premium and Standard discount brokers. Scottrade offers competitive rates with a lot of service and tools. They have the most physical branches than anyone else in the country. Scottrade is a broker that you can grow into and still feel comfortable with. They accommodate the small and large accounts nicely.

 

These are the complete numbers from the research:

 

Stock and Equity Trades
Base Rate
Phone Order
Broker Assisted
OptionsHouse
2.95
2.95
2.95
Bank of America
14.00
32.50
42.50
Charles Schwab
12.95
12.95
32.95
E-Trade
12.99
N/A
52.99
Fidelity
19.95
0
0
Firstrade
6.95
16.95
26.95
OptionsXpress
14.95
N/A
14.95
Scottrade
7.00
17.00
27.00
Sharebuilder
4 Buy/15.95 Sell
19.95
N/A
Sogotrade
3.00
N/A
N/A
TD Ameritrade
9.99
34.99
44.99
TradeKing
4.95
N/A
4.95
Vanguard
25.00
40.00
45.00
Wells Fargo
19.95
19.95
44.95
Zecco
4.50
N/A
19.99
AVERAGE
11.87
24.91
32.47

 

 

 

Account Details
Minimum Balance
Fractional Shares
Branches
Inactivity Fee
Sign-up Bonus
Bank of America
0
-
Bank
100
-
Charles Schwab
1,000
-
303
0
-
E-Trade
1,000
-
28
160
-
Fidelity
2,500
-
118
0
-
Firstrade
0
-
-
0
Yes
OptionsXpress
0
-
-
0
-
Scottrade
500
-
326
0
-
Sharebuilder
0
Yes
-
0
-
Sogotrade
2,500
Yes
-
0
-
TD Ameritrade
1,000
-
103
0
Yes
TradeKing
0
Yes*
-
0
-
Vanguard
4,000
-
-
30
-
Wells Fargo
1,000
-
Bank
60
-
Zecco
0
-
-
0
-

*Only with dividend reinvestment

 

 

Option Cost & Margin Rate
Option Trading Costs
Margin Interest Rates
Base
Per Contract
Exercises
/Assign.
Under 10K
50-100K
1 million +
OptionsHouse
9.95
None
0
4.45%
4.45%
4.45%
Bank of America
19.95
1.50
42.50
n/a
n/a
n/a
Charles Schwab
9.95
0.75
8.50%
6.50%
6.00%
E-Trade
12.99
0.75
19.99
6.99%
3.99%
3.99%
Fidelity
19.95
0.75
0
8.57%
4.50%
3.75%
Firstrade
6.95
0.75
0
9.00%
8.75%
5.75%
OptionsXpress
0.00
1.25
0
6.25%
4.00%
4.00%
Scottrade
7.00
1.25
17.00
7.75%
6.75%
5.25%
Sharebuilder
9.95
1.50
30.00
10.50%
8.00%
5.25%
Sogotrade
N/A
N/A
N/A
9.50%
9.25%
7.00%
TD Ameritrade
9.99
0.75
19.99
9.00%
6.25%
6.25%
TradeKing
4.95
0.65
9.95
9.00%
6.25%
6.00%
Vanguard
30.00
1.50
$30 + $2.50
?
?
?
Wells Fargo
9.95
1.00
34.95
9.50%
8.25%
7.25%
Zecco
4.50
0.50
4.50
7.95%
7.45%
7.45%

 

 

 

Cash Issues
  Cash Balance Interest Rates Accessing Cash
Under 5K
50-100K
1 million +
Check Writing
ATM
Bank Account
Bank of America
?
?
?
-
-
Yes
Charles Schwab
0.50%
0.50%
2.05%
-
-
Yes
E-Trade
0.05%
2.65%
3.50%
Yes
Yes
Yes
Fidelity
?
?
?
Yes
Yes
Yes
Firstrade
1.50%
1.75%
2.00%
-
-
Yes
OptionsXpress
3.76%
3.76%
3.76%
-
-
Yes
Scottrade
0.50%
3.25%
4.75%
Yes
-
Yes
Sharebuilder *
4.18%
4.18%
4.18%
-
-
Yes
Sogotrade
1.25%
2.25%
3.25%
-
-
Yes
TD Ameritrade
0.05%
0.30%
1.85%
-
-
Yes
TradeKing
3.41%
3.41%
3.41%
Yes
-
Yes
Vanguard
?
?
?
-
-
Yes
Wells Fargo
?
?
?
-
-
Yes
Zecco **
4.08
4.08
4.08
-
-
Yes

*Sharebuilder uses DBMXX money market account.

 

 

Mutual Funds Details

Mutual Fund Trading Costs

# of No
Fee
Funds
No-Load No
Fee Program
No Load Fee
Load Funds
Bank of America
1,300
Yes
45
45
Charles Schwab
2,000
Yes
49.95
49.95
E-Trade
1,175
Yes
19.99
19.99
Fidelity
1,400
Yes
19.95
19.95
Firstrade
Yes
9.95
0
OptionsXpress
N/A
No
14.95
14.95
Scottrade
1,150
Yes
17
17
Sharebuilder
N/A
No
N/A
N/A
Sogotrade
N/A
No
N/A
N/A
TD Ameritrade
1,300
Yes
49.99
0
TradeKing
-
No
14.95
14.95
Vanguard
N/A
No
N/A
N/A
Wells Fargo
800
Yes
35
25
Zecco
-
No
10
N/A

 

 

 

IRA Details

IRA Costs
Annual Fee
Termination
Bank of America
0
75
Charles Schwab
0
0
E-Trade
160
60
Fidelity
Firstrade
0
0
OptionsXpress
0
0
Scottrade
0
0
Sharebuilder
25
50
Sogotrade
No IRA Available
TD Ameritrade
TradeKing
0
50
Vanguard
30
Wells Fargo
30
50
Zecco
30
30

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Zecco Review & Ratings – Compare Online Discount Brokers

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zecco review rating

With Zecco there are no minimum balances to open an account. To get 10 free trades a month a $2,500 minimum is required. They have very little fees with the exception of a 30 annual fee on IRA accounts. When I signed up for Zecco the paperwork was a nightmare but I think they’ve fixed that now. They seem to be adding more and more to their offering and will be a viable broker into the future.

Start an Account with Zecco

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What is Compound Interest

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Compound Interest is one of the most important concepts in personal finance. By understanding the power of compound interest and how it works it will change your investing strategy, your mindset, and your goals. This concept is so powerful that Einstein is quoted as saying “The most powerful force in the universe is compound interest”.

The idea is simple. Compound interest is interest that becomes principle. When the earned interest becomes principle it starts earning interest on itself. To help illustrate, lets contrast Simple Interest with Compound Interest.


Key to Different Types of Interest
In the following example the icons that look like squares can earn interest. The squares are ‘money makers’. The hexagons can’t create money. They are paid out as interest.
key-to-simple-and-compound-interest.jpg

Simple Interest Example

Simple interest keeps the earned interest and the principle separate. In other words, the interest never becomes principle. Simple Interest growth would look like this:

Simple Interest Graph

Compound Interest Growth
When Compound Interest grows it makes smaller pieces of principle which also earn interest. One of these new pieces of earned money changes from interest to principle when the account compounds. Investments can compound yearly, biannually, quarterly, monthly, and even sooner in some cases. The more something compounds the sooner you can make new money off earned interest.

Intererst Becomes Principle

The above illustration shows the interest making new amounts of interest from themselves. These new sums of principle will grow independently of the first sum of principle.

Compound and Simple Interest Example
This graph shows the nature of compound interest. This is known as exponential growth. In order for you to see big results you need two ingredients: Time and Rate of Return.

What you need for Compound Interest to work well: Time and Growth Rate.

If you had 40 years to let your money grow you would be much better off than someone who only had 30, 20, or 10. Those last few years are critical to make the big returns. The sooner you pull your money out the sooner you stop all the compounding growth.


MoneyChimp Compound Interest Calculator

When you contrast simple growth with compound growth you can see the longterm difference between the two. Notice how similar the compound interest line and the simple interest line are in the beginning. The more time you give compound interest the more it will beat simple interest. The less time you give to compound interest the less it can perform.

Compound and Simple Interest Growth

Rule of 72

The rule of 72 helps you estimate how soon your money will double given a constant growth rate with compound interest. To use the rule of seventy-two take the growth rate and divide it into 72. The outcome will equal how many years it will take to double your money. This assumes a constant growth rate and that your investment is compounding.

72 / (growth rate) = Years to Double Investment

For example with a growth rate = 10%

72 / 10 = 7.2 Years

Answer: It will take 7.2 years to double your money with 10% return on your investment.

The rule of 72 isn’t an absolute but it will get you in the ball park. Another downside is that if your growth rate fluctuates too much the rule of 72 doesn’t work.


Summary
As you understand how compound interest works you can better plan your future. Compound interest is what makes retirement possible despite rising costs of living, inflation, and other costs. If you have any more to add please leave a comment.

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What is a 401(k) – Traditional vs Roth

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When considering a Roth 401(k) vs a Traditional 401(k) you need to do one thing: Find out if your employer offers Roth 401(k) retirement accounts. If they don’t most of this information will be interesting but you can’t take advantage of any of it until your employer makes Roth 401(k)s available.

In should be noted that Roth 401(k)s are coupled with Traditional 401(k)s. The maximum contributions for both combined cannot exceed $15,500 for the year. If you are 50 + an additional $5,000 per year can be contributed to “catch up”.

401K comparison chart
This chart shows 2006 numbers. Add $500 to the limits for 2008 standards.

Roth 401(k)

Contributions:

  • Contributions are made with after tax dollars
  • Contributions and earnings grow tax free. Because the money was already taxed it won’t be taxed when you pull it out.


Employer Match:
Employers match are sent to Traditional 401(k). Roth 401Ks can’t accept employer match money.

Max Contributions:
$15,500 per year. For those that are 50 years old or more can add an additional $5000 yearly.

Distibutions:
Qualified distributions can be made after 5 taxable years from the opening the account. In addition, you must have either:

  • turned 59 ½ in age
  • died
  • or became disabled

Nonqualified distributions are subject to income tax on earnings.

Hardship withdrawal guidelines are the same for Roth 401(k) as with Traditional 401(k).

Key advantages:

  • No income restrictions. (Roth 401(k)s are available to everyone making a salary with no max limitations while Roth IRA’s aren’t available to those who make more than $110,000 as an individual.)
  • Higher yearly contribution. $15,500 yearly maximum contributions instead of the Roth IRA minimum of $4,000
  • Earnings grow tax free

Disadvantages:

  • Not widely available among employers. Due to the extra cost in accounting and book keeping Roth 401(k)’s aren’t being adopted quickly.

Why a Roth 401(k) is the best choice (if available):
Politicians promise lower taxes each election year but somehow taxes have increased inevitably. As much as I’d love to have someone get rid of taxes I don’t think we’re going to reduce taxes anytime soon. Benjamin Franklin said it best “In this world nothing is certain but death and taxes.”

For this reason a Roth 401(k) is usually always the best choice when compared with a traditional 401(k).

The other side of the argument is if your income tax rate is high now but will be low when you retire a traditional 401(k) might be better.
If your income tax rate is low now and will be higher later the Roth 401(k) is better.

Traditional 401(k)

Contributions:

  • are made with pretax dollars
  • are tax deductible
  • are taxed when distributed.
  • No more than $15,500 plus $5000 if over 50 years old

Employer Match:
The maximum is 6% up to a $230,000 salary for a total of $13,800.

Distributions:
59 ½ is the earliest you can receive distributions.

Early withdrawals are subject to -10% penalty plus any taxes.

Minimum Required Distribution (MRD)
Begins the calender year when participant turns 70 ½ or the calendar year they retire. Required distributions may start even if the participant hasn’t retired. It begins April 1 of the year after reaching 70½.

Hardship Withdrawals:
Optional, varies among different plans
These conditions apply to spouse and minor dependents as well.
Some medical expenses
Some costs on the purchase of a primary residence
Tuition and educational expenses
Preventing foreclosure on primary residence
Funeral expenses
Hardship withdrawals are only available if there are no other means to pay these debts. In other words, this is a last resort.

401(k) Loans:

  • 1-2% above prime
  • Interest goes towards 401(K) account
  • Usually only one loan per 12 month period
  • Failure to repay loan could result in 10% penalty plus other taxes
  • If you leave your job, 60 days is a standard repay time
  • Most loans are 5 year loans


Additional Resources:
http://www.irs.gov/retirement/sponsor/article/0,,id=151926,00.html
http://www.irs.gov/pub/irs-pdf/p575.pdf
http://myretirement.retire.americanfunds.com/tools/calculators/roth-401k.htm



This is a summary and should only used for informational purposes only. Always consult a tax expert before making any decisions regarding your own financial plans.

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