Review: Scottrade IRA

Back in 2001, I opened a Roth IRA with Scottrade. I kept it there for several years, and for the most part, I was quite happy with it. After all, there’s plenty to like about Scottrade:

• They offer low-cost purchases of ETFs and other stocks–it’s been $7 per trade for several years,
• Their online interface is easy to use,
• There’s no annual fee for having an IRA with them,
• Their customer service is pretty good, and
• They offer access to tons of no-load mutual funds.

So why don’t I use Scottrade anymore?

One reason: They don’t allow for automatic reinvestment of dividends with ETFs. Every time an ETF pays you a dividend, that money will sit in cash until you pay another $7 to invest it. And even if you don’t mind paying $7 to reinvest your dividends, Scottrade doesn’t allow for the purchase of fractional shares, so you’ll have a little money sitting in cash regardless.

Important note: With regular open-end no-load mutual funds, Scottrade does allow for both:

• Free, automatic dividend reinvestment, and
• Fractional share purchases.

Would I recommend Scottrade?

That depends on what you intend to invest in:

• If you intend to stick with your typical no-load mutual funds, then yes, I think Scottrade is a great place to invest.
• If, however, you intend to invest via ETFs (or other individual stocks), there’s no reason to have your money sitting on the sidelines when you could just go to a different brokerage firm–TradeKing, for example–and sign up for (free) automatic dividend reinvestment.

If you think Scottrade sounds like a good fit for you, here’s the link to the page where you can open an account.