Deep Discount Brokers: Charles Schwab vs. Robinhood

By Jordan Wathen Markets Fool.com

The list of brokerage firms is seemingly endless, so when you're ready to open a brokerage account, it's almost certain that there is a broker that almost perfectly matches your expectations. From commissions to investment availability and research, there's a lot to ponder when choosing a broker.

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Today, we'll simplify the comparison to just two popular brokerages, Robinhood and Charles Schwab. These two offer very different services, but let's see how they stack up for the buy-and-hold investor.

Trading costs and commissions

Robinhood is a deep-discount broker that does not charge commissions, but offers fewer investment choices as a result. Charles Schwab charges commissions, but opens up more investment opportunities to investors. Here's how their standard commission prices compare.

Broker

Stocks/Options

ETFs

Mutual Funds

Robinhood

Stocks: Free

Options: Not available

Free

Not available

Charles Schwab

$8.95 per trade + $0.75 per options contract

$8.95

$76.00

Source: Company websites.

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Importantly, trades through Robinhood are free, but the platform is limited to stocks and ETFs. Schwab clients can trade options and mutual funds in addition to stocks and ETFs, but will pay a commission on every trade.

Remember that the average investor typically pays a lower commission than the standard rate table. There are several reasons for this. First, some brokers have fee-free funds and ETFs, which do not incur transaction charges.

Second -- and this is worth further investigation -- brokers frequently provide special offers for opening new brokerage accounts, as well as IRA accounts. These special offers frequently include commission-free trades, cash bonuses, and other perks that can be worth as much as $2,000 or more.

Commission-free ETFs and NTF Funds

As mentioned above, many brokers allow for commission-free trading in select ETFs and mutual funds. Keep on the lookout for funds labeled as "commission-free ETFs" or "no-transaction-fee (NTF)" mutual funds -- these are the freebies.

Broker

Commission-Free ETFs

NTF Mutual Funds

Robinhood

All ETFs

Not available

Charles Schwab

200+ ETFs (Schwab, Guggenheim, State Street, and others)

3,900+

Source: Company websites.

Robinhood has the advantage on free ETF trades, given that every stock and ETF trade is free on its platform. However, when it comes to mutual funds, Charles Schwab's selection of more than 3,900 NTF mutual funds takes the column.

Importantly, there's more to picking a broker than the availability of fee-free funds. After all, which funds make the fee-free list is inevitably more important than how many funds are on the fee-free list. However, where these criteria intersect, you can certainly save big.

Account minimums

Neither Robinhood nor Charles Schwab has an account minimum, so you can open a brokerage account at either firm with some spare change you found between your couch cushions.

Realistically, though, you'd probably want to start with a little more than just a few singles. Although neither broker requires that you make a minimum deposit to open an account, you'll need at least enough money to buy a single share of a stock, mutual fund, or ETF to actually make an investment.

Trading platform

We're obsessed with long-term investing here at The Motley Fool. We buy stocks to hold them for years, if not decades.We tend to think that, much like the choice for the best comic book hero, preference for a trading platform tends to be rooted in personal preferences and biases. With that in mind, we'd encourage you to try them out for yourself.

There is one thing to keep in mind, though. Robinhood's platform is mobile-only (phones and tablets), whereas Schwab offers mobile and desktop trading. If you'd prefer to use a computer rather than a phone or tablet, this may be important to you.

Charles Schwab is one of the few brokers that offers access to foreign stock markets. Image source: Getty Images.

International stocks and ADRs

Generally speaking, most online brokers offer the ability to invest in foreign companies, with varying limitations. Charles Schwab and Robinhood differ pretty significantly here, as the table below uncovers.

Investments

Charles Schwab

Robinhood

American depositary receipts (ADRs)

Yes

Some

International stock markets

30+

No

ETFs/mutual funds of foreign stocks

ETFs and mutual funds

ETFs, not mutual funds

Source: Company websites.

Some foreign companies have American tickers known as American depositary receipts (ADRs). These can be freely traded at Charles Schwab, but Robinhood customers' choices are more limited. Robinhood does not support over-the-counter (OTC) stocks, which include many ADRs. Trading is limited to companies domiciled in Canada and Israel that trade above $5.

If you'd like to trade directly on international stock exchanges, only Charles Schwab can help you here. Schwab allows for online trading in 12 markets, whereas its Global Services desk can process trades in 30 foreign markets.Depending on the role that foreign stocks play in your portfolio, the differences may be more or less important to you. Importantly, Schwab is one of just a handful of discount brokers that allow you to trade on international markets.

Research quality and tools

As a general rule, investors can benefit from access to research to help them find good investments. At the worst, most research is provided as a free feature, so you won't have to feel bad if you don't use it.

Again, the two brokerages diverge here. Charles Schwab offers a number of screening tools, in addition to proprietary research from Schwab analysts. Third-party research from Morningstar, Reuters, and S&P is also made available to customers.

Robinhood doesn't currently offer research to its clients, which is a trade-off that investors have to weigh against the benefit of commission-free trading.

Mobile app

As long as you can connect to the internet with your phone or tablet, you can make a trade through mobile trading apps provided by Robinhood and Charles Schwab. Here's how each broker's users and clients rated its iOS and Android apps (as of Dec. 19, 2016).

Broker

Apple App Store

Google Play

Robinhood

4.5 stars

4.5 stars

Charles Schwab

1.5 stars

4.0 stars

Source: Relevant app stores.

Which wins for you: Robinhood or Charles Schwab?

Depending on your needs, you could make the case for either brokerage. Robinhood's commission-free trades may help it win over investors who are particularly cost-conscious and prefer low costs to supplemental features. Charles Schwab may win over some investors with its ability to route trades to international markets, or because of its exhaustive list of no-transaction-fee mutual funds.

The point is that there is no "best" broker for everyone, as they all cater to different types of investors. To be clear: The Motley Fool does not endorse any particular broker, but we can help you find one that is right for your needs. Visit Fool.com's Broker Center to quickly compare special offers from several leading brokerages all on one page. If retirement accounts are top of mind, Fool.com's IRA Center should be your next destination, as it focuses on features for retirement savers.

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