A decade or so ago, one of the big factors in terms of deciding where to open an IRA was the quality of investment options available through each brokerage firm. Now, however, you can create a low-cost, diversified portfolio just about anywhere using ETFs.
That leaves you with four primary things to consider when selecting a brokerage firm:
- Account minimums (if you’re just starting out),
- Account fees,
- Commissions per trade, and
- Quality of customer service and online interface.
That last one is rather hard to quantify, and different people care about different things anyway. The first three factors, however, can be put in a nice little chart for easy comparison. 
Update: Thanks to reader Brian W. for mentioning that dividend reinvestment should be included in the chart and for providing the information.
Discount Brokerages (Sorted by Cost)
| Account Minimum for IRA | Annual IRA Fee | Commission per Trade | Dividend Reinvestment | |
| OptionsHouse | $1,000 | none | $2.95 | ?? |
| Zecco | none | $30 | $4.50 | free* |
| TradeKing | none | none | $4.95 | free |
| Firstrade | none | none | $6.95 | free |
| Scottrade | $500 | none | $7.00 | $7.00/trade |
| tradeMONSTER | none | none | $7.50 | free |
| Schwab | $1,000 | none | $8.95 | free |
| ShareBuilder | none | none | $9.95 | free |
| TD Ameritrade | $1,000 | none | $9.99 | free |
| Etrade | none | none | $12.99 | free |
| optionsXpress | none | none | $14.95 | ?? |
| Wells Fargo | $1,000 | none | $19.95* | ?? |
Additional Notes
- If your account value is $25,000 or greater, Zecco gives you 10 free trades each month.
- Zecco’s dividend reinvestment is free, but only possible when purchasing whole shares.
- I can’t seem to find any information as to whether OptionsHouse, optionsXpress, or Wells Fargo offer free dividend reinvestment and whether or not fractional shares can be purchased.
- *If you have a Wells Fargo “WellsTrade IRA” that’s linked to a Wells Fargo checking account and your Wells Fargo accounts have a combined balance of $25,000 or greater, they’ll give you 100 commission-free trades per year. (Also, if you have a Wells Fargo mortgage, 10% of the mortgage balance gets counted toward the $25k.)
In case you’re curious, I use TradeKing. (You can see my TradeKing review here.)
Hope that helps. Good luck with your new IRA!
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{ 11 comments… read them below or add one }
although your discussion is regarding IRAs, if one is considering a taxable account i would also consider sogotrade since they have only $3 commissions (although they have a $500 minimum). sogotrade, however, does not do IRAs yet. i also have a Roth at TD Ameritrade and have never encountered an annual fee.
JC: Thanks for the info regarding TD Ameritrade. I’ll update the chart.
If anybody else has info regarding other discount brokerages with whom they have an IRA, please let me know and I’ll add it.
Here is why I don’t prefer ETFs for my IRA / Roth IRA accounts – I prefer to contribute a fixed amount at regular intervals $250 every 15 days, or $100 every week as opposed to a lump sump $5K for the year. That way I can take advantage of Dollar-cost-averaging and reduce the risk of market timing. Now if I were to do this with ETF, I have two issues. Number one of course is the commission I have to pay every time. Secondly, I cannot invest a fixed amount every period, because you cannot buy ETFs in fractions. You have to buy them in whole number.
I think ETFs portfolio is great when you are investing a big lump sump amount once, like rolling over old 401k to an IRA, but for investing at a regular interval – Vanguard index funds are the best!
Nice resource, thanks for the quick comparisons. Makes a handy reference! Does one need to keep any “cash minimum” in their trading accounts with any of these companies (i.e., not for IRAs, but for stock purchases)?
I will second GoYanks regarding Dollar Cost Averaging with Mutual Funds. In addition, since ETF is traded in exchange, there is bid-ask spread, although it is relatively small. So considering the commission cost, the bid-ask spread, and the fact that in most cases, you will have to buy them in whole number, I think I prefer index funds. With most online brokers, you won’t be able to reinvest dividends easily too.
Note that I said that most probably you will not be able to buy fractional shares and reinvest dividends. You can in fact buy fractional shares and reinvest your dividends with sites such as BuyandHold.com or Sharebuilder.com.
MoneyEnergy: Good question. I don’t have the answer though. The only of the above companies my family has an account with is TradeKing, and that’s an IRA.
GoYanks and Mr. Bee: I certainly hear you on the convenience of regular open end index funds for automatic investment.
On the other hand, if your time frame is a decade or more, it doesn’t take very large monthly investments in order for ETFs to cost less (even including bid/ask spreads and commissions).
Mike,
I see where you coming from but let’s look at the number. I will simplify here and choose two cheapest options from your list, Zecco and TradeKing.
Let’s consider that I have decided to use DCA and want to maximize my IRAs by contributing equal amount each month. Thus I will be contributing about 416.67/month. Even if I take the easy way out and only invest in a single ETF, my trade commission is similar to paying 1.08% load (Zecco) or 1.19% (TradeKing) . Ignoring time values of money, that would be about additional 0.1% each year if spread of a decade (would be more if I consider time values of money). Granted if you spread over two decades, it is even lower.
But how about dividend reinvestment. Quick check on Zecco, it does dividend reinvestment, but I believe with both Zecco and TradeKing, you can’t have fractional shares, thus not a full reinvestment. What if you decided on multiple ETFs on your account and still want to contribute equal amount monthly? And if you have multiple ETFs in your IRA, you will have to start thinking about trade commissions if you are doing rebalancing.
Overall, I think if you want to use DCA, mutual funds would be a better option. If you always plan to invest your IRA contributions each year in lump sum amount, then I would consider ETFs.
Mr. Bee, I am looking at the numbers.
For reference, I’m not trying to say that ETFs are always the better option, just that they can be, depending upon your circumstances (and, in my opinion, that includes some circumstances in which the investor is DCA’ing).
A comparison of Vanguard ETFs vs. open end funds shows that you’re saving 10-15 basis points annually by using ETFs.
So if you’re looking at an investment of $400 or so, your break even point is roughly one decade. Anything longer than that, and ETFs are probably going to cost less. Anything shorter, and open end index funds are better.
If you’re looking to invest in 4 funds, with small monthly contributions ($100 each, let’s say), then yes, open end funds are certainly the better option.
On the other hand, if you’re putting $400 into one fund, and your holding period is likely to be 30+ years, then ETFs are probably the better choice.
If you’re somewhere in between, then it’s probably a wash (or quite close), in which case I’d go with the open end funds simply for convenience.
Right now I am being laid off by March 31, 2010. I am in the hunt for a new job and hopeful too. I am not to savvy in the world of investing. And I need to know if I should leave my 401k money with Fidelity Investments or should I take it out and place it in some other investing account that would allow the transfer and hopefully make some money in the long run.
Hi JRab.
I’m sorry to hear about your job loss. I sincerely hope your search goes quickly and smoothly.
As to rolling over a 401(k), I’m of the opinion that it’s almost always a good idea. (Though there are a few exceptions.)
Personally, my preferred IRA providers are TradeKing or Vanguard. You can see my reasoning here.
If you aren’t day-trading, Sharebuilder offers a still better bargain. Place your Buy order one working day in advance of the next Tuesday trading day, and commision is only $4. Sharebuilder’s list is not as expansive as some others (e.g., Sogotrade), but many ETFs and mutual funds are also available with same deal. No fee for dividend reinvesting.