Brokerages for Buy-and-Hold Investors: TD Ameritrade vs. E*Trade

By Markets Fool.com

Do-it-yourself investors are increasingly opening accounts with online discount brokers to buy and sell everything from stocks to exchange-traded funds to mutual funds. Two popular choices, TD Ameritrade and E*Trade, are well known and used by millions of people. Here's how the two compare for long-term buy-and-hold investors.

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Trading costs

As the average costs of trading plummet, the differences between brokers are shrinking to mere pennies. Below are the standard rates that investors can expect to pay to buy and sell stocks, stock options, ETFs and mutual funds at TD Ameritrade and E*Trade.

Broker

Stocks/Options

ETFs

Mutual Funds

TD Ameritrade

$9.99 per trade + $0.75 per options contract

$9.99 per trade

$49.95 per purchase

E*Trade

$9.99 per trade + $0.75 per options contract

$9.99 per trade

$19.99 per purchase

Data sources: Company websites.

Keep in mind that these are the standard rates, and it's possible that you'll pay significantly less for each trade.In fact, TD Ameritrade and E*Trade frequently havespecial offers for IRA accountsand ordinary taxable brokerage accountsthat reduce the true cost of every trade.

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Commission-free funds and trades

While most brokers charge a commission to trade individual stocks and options, many offer thousands of so-called "no-transaction-fee" mutual funds and ETFs that cost nothing to buy or sell.

Broker

Commission-Free ETFs

Mutual Funds

TD Ameritrade

101 ETFs (iShares, Vanguard, and VanEck ETFs)

3,984

E*Trade

105 ETFs (WisdomTree, Global X Funds, and Deutsche Bank ETFs)

2,500

Data sources: Company websites.

Keep in mind that no-transaction-fee funds are not completely free. Investors will still pay for other fees, like annual management fees, just as they would with a mutual fund purchased through another broker or directly from the fund company.

The availability of NTF funds and ETFs could make a significant different for people who intend to make routine contributions to their brokerage accounts over time.

Account minimums

TD Ameritrade and E*Trade have some of the lowest account minimums for new investors. TD Ameritrade does not require a minimum balance to open an account. E*Trade requires that investors open an account with just $500 to get started.

There are some practical limitations, however. Mutual funds frequently require minimum investments ranging from $1 to $3,000. If you plan to invest in individual stocks and ETFs, then you'll need to be able to afford at least one share to complete a trade.

In any event, it's unlikely that the minimum account requirements of TD Ameritrade or E*Trade will be too onerous for beginning or experienced investors.

International stocks

TD Ameritrade and E*Trade do not offer access to foreign markets. However, investors can invest in foreign companies through American depositary receipts (ADRs), which trade on American stock markets. In addition, you can always invest in U.S.-listed ETFs and mutual funds that invest in foreign stocks with E*Trade or TD Ameritrade.

Trading platform

The Motley Fool doesn't put too much emphasis on the functionality of any broker's trading platform, as we prefer to buy and hold investments for the long term. Thus we tend to spend more time looking for great stocks to hold for the long haul, rather than stocks that we can trade for small gains.

Ultimately, long-term investors like us see trading platforms as a means to an end -- a way to buy a stock we want to hold for a very long time. It's really a personal preference, and either the TD Ameritrade or the E*Trade platform would suit most long-term investors just fine.

When you buy and hold, the trading platform is just a means to an end. Image source: Getty Images.

Research quality and tools

While discount brokers might be known for serving do-it-yourself investors, most brokers have research tools to help investors make informed decisions. E*Trade and TD Ameritrade offer a number of stock and fund screening tools to sort through potential investment ideas.

In addition, both brokers give their clients access to third-party research services like Thomson Reuters and Morningstar. Most long-term investors would be quite happy with the collection of third-party and proprietary research tools offered by each broker, given that both offer plenty of sources for a second opinion.

Mobile app

Here's how each broker's users and clients rated their mobile apps' capabilities on iOS and Android (as of Nov. 25, 2016):

Broker

Apple App Store

Android Store

TD Ameritrade

4.5 stars

3.5stars

E*Trade

1.5stars

3.9stars

Data sources: Relevant app stores.

The bottom line on brokerages

Whether you prefer to invest in individual stocks, ETFs, or mutual funds, buy-and-hold investors will find that E*Trade and TD Ameritrade both offer compelling commission prices, a wide range of research tools, and low- or no-minimum account sizes that make them a suitable fit for investors of all experience levels.

To be clear, The Motley Fool does not endorse any particular broker. That said, we can help you find a broker that's a good fit for your individual needs. See Fool.com's Broker Centerto quickly compare several brokers. If you're looking to open an account for an IRA, check out the IRA special offers page for a more relevant comparison.

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Jordan Wathen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends TD Ameritrade. The Motley Fool recommends WisdomTree Investments. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.