Brokers for Long-Term Investors: Interactive Brokers vs. Charles Schwab
When you're ready to start investing, you'll need to open a brokerage account to place your orders. Many investors now use online discount brokers for self-directed accounts to make trades quickly, conveniently, and inexpensively.Today we'll look at two of the largest brokers out there, Interactive Brokers and Charles Schwab, to see how they compare on factors that are important to investors.
Trading costs and commissions
The biggest advantage of any discount broker is that they are downright cheap. Both Interactive Brokers and Charles Schwab keep their clients' trading costs low, which you'll notice from the commission prices shown in the table below.
|
Broker |
Stocks/Options |
ETFs |
Mutual funds |
|---|---|---|---|
|
Interactive Brokers |
Stocks: $0.005 per share ($1.00 minimum) Options: $0.25 to $0.70 per contract ($1 minimum) |
$0.005 per share ($1.00 minimum) |
$14.95 per purchase |
|
Charles Schwab |
$8.95 per trade + $0.75 per options contract |
$8.95 per trade |
$76.00 per purchase |
Source: Company websites.
Importantly, the table above shows each broker's published prices, but you may pay less in commissions. Interactive Brokers offers a "tiered" pricing schedule that can result in lower prices, in addition to volume-based discounts for active traders. Charles Schwab is one of the leaders in commission-free trading options, which can significantly reduce its clients true cost per trade. Of course, you should learn more about special offers for opening a brokerage account, which frequently come in the form of commission savings and cash bonuses worth thousands of dollars.
Commission-free ETFs and NTF Funds
More brokers are offering commission-free ETFs and no-transaction-fee (NTF) mutual funds that their clients can buy and sell without paying a fee. Below, we've compared how these
|
Broker |
Commission-free ETFs |
NTF Mutual funds |
|---|---|---|
|
Interactive Brokers |
33 (GlobalX, Cambria, and O'Shares) |
2,900+ |
|
Charles Schwab |
200+ (Schwab, State Street, Guggenheim, and more) |
3,900+ |
Source: Company websites.
Depending on your needs, you can find plenty to like about commission-free options at either brokerage. Charles Schwab has a lengthier list of fee-free funds, but Interactive Brokers has lower standard commission prices, which makes it the lower-cost option for funds that aren't free of brokerage fees.
Account minimums
Before going too much further, it may be wise to break out account requirements, since these brokers vary pretty significantly here. Charles Schwab doesn't require a minimum account size to open an account. Interactive Brokers requires that its clients open accounts with a minimum deposit of $10,000 for taxable brokerage accounts, and $5,000 for IRAs. Investors who get an early start can open an account with just $3,000, provided they are currently age 25 or younger.
Trading platform
We at The Motley Fool believe in a buy-and-hold investment strategy in which we invest in stocks for years or decades, rather than days or weeks. As a result, we don't do much trading, and tend not to use complex trading platforms to their full potential. Since we tend to think trading platforms are designed for traders rather than investors, and preference for a platform is really all about personal opinion, we'll let you be the judge.
Interactive Brokers and Charles Schwab offer more international investment opportunities than other brokerages. Image source: Getty Images.
International stocks and ADRs
Do international stocks play an important role in your portfolio? You'll be happy to find that Interactive Brokers and Charles Schwab are two of just a few discount brokers that enable investors to hunt for stocks all around the world.
|
Investments |
Interactive Brokers |
Charles Schwab |
|---|---|---|
|
American Depositary Receipts (ADRs) |
Yes |
Yes |
|
International stock markets |
Yes |
Yes |
|
ETFs/Mutual funds of foreign stocks |
ETFs and mutual funds |
ETFs and mutual funds |
Source: Company websites.
Schwab Global Accounts allow for electronic trading in 12 markets, while its Global Services desk can open up trading in more than 30 markets. Interactive Brokers provides access to trade electronically in more than 100 international markets around the world.
Depending on your needs, either brokerage could be a good choice. Keep in mind that trading on foreign markets often comes with higher fees and commissions that vary by the market in which you wish to trade.
Research quality and tools
We generally believe that individual investors can benefit from access to a wide range of insights, opinions, and research tools. Interactive Brokers and Charles Schwab both offer an impressive assortment of research materials for individual investors.
Schwab offers proprietary research from in-house analysts, in addition to research from third-parties that include Credit Suisse, S&P, Reuters, and more. Interactive Brokers delivers with analyst upgrades and downgrades for individual stocks, news off the wires, and an excellent assortment of screeners.
Realistically, we've only scratched the surface of what both brokers have to offer, and it's likely that investors could find plenty to like about the research provided by either brokerage.
Mobile app
If you own a phone or tablet, you can now trade from just about anywhere through each broker's mobile trading app. Here's how each brokers' users and clients rated their iOS and Android apps (as of 12/29/2016).
|
Broker |
Apple App Store |
Google Play |
|---|---|---|
|
Interactive Brokers |
3.5 stars |
4.0 stars |
|
Charles Schwab |
3.0 stars |
4.0 stars |
Source: Relevant app stores.
Picking a discount broker for you: Charles Schwab or Capital One
The truth is that there is a particular broker best suited for a particular type of broker. On one hand, Interactive Brokers offers cut-rate commission prices, but its minimum account requirements may not suit new investors. Charles Schwab offers a vast assortment of commission-free funds, but funds that aren't on its fee-free lists incur higher commission costs. It all depends on your portfolio, and how you invest. To be clear: The Motley Fool does not endorse any particular broker. See Fool.com's Broker Center for a comprehensive comparison of features and special offers at popular brokerage. Fool.com's IRA Center is similarly designed with the retirement investor in mind.
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Jordan Wathen owns shares of Interactive Brokers. The Motley Fool recommends Interactive Brokers. The Motley Fool has a disclosure policy.