TD Ameritrade vs. Interactive Brokers: Where to Open an IRA

By Jordan Wathen Markets Fool.com

Individual retirement accounts (IRAs) are powerful savings tools that can help you compound your money tax-deferred while investing in a range of investments that you choose yourself. But before you start, you'll need to pick where you want to open an IRA account. That's not always easy, given the vast number of brokers vying for business.

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Let's start by keeping it simple. We'll compareTD Ameritrade and Interactive Brokers on the most important features for IRA investors -- commissions, fund selection, research, and more.

Commission prices by investment

It's a great time to be an investor. Forty-seven years after fixed commissions were abolished, brokerage firms have pushed the cost of trading lower and lower. Today, most discount brokers allow you to complete most trades for less than $10. In this table, we've compared TD Ameritrade and Interactive Brokers on trading costs by type of trade:

Brokerage

Stocks and ETFs

Stock options

Mutual funds

TD Ameritrade

$9.99 per trade

$9.99 + $0.75 per contract

$49.99 per purchase

Interactive Brokers

$0.005 per share ($1.00 minimum)

$0.25 to $0.70 per contract ($1.00 minimum)

$14.95 per purchase

Data source: company websites.

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TD Ameritrade promises flat-rate fees, whereas Interactive Brokers' commissions are mostly variable. And, generally speaking, the price you pay for the average trade may be much lower than the stated commission price.First, investors can collect bonus cash and commission-free trades thanks to special offers for opening an IRA. Secondly, some funds can be traded without paying a commission at all.

Mutual fund selection and commission-free choices

Not all mutual funds are available through every broker, and brokers maintain different fee-free funds lists. TD Ameritrade and Capital One both offer plenty of mutual funds to choose from, with thousands of funds that are commission-free or no-transaction-fee (NTF).

Brokerage

Total Mutual Funds

No-Load, No-Transaction-Fee Funds (NTF)

Commission-Free ETFs

TD Ameritrade

11,800+

3,800+

101 (iShares, Vanguard, VanEck, etc.)

Interactive Brokers

8,200+

2,900+

41 (Global X, Cambria, ETF Securities, etc.)

Data source: the companies.

While not every broker offers every mutual fund, it's pretty clear that both TD Ameritrade and Interactive Brokers do offer a lot of choice to their clients, including thousands of no-load, no-transaction-fee mutual funds that are free to trade. Likewise, both offer a list of commission-free funds from multiple sponsors that can also be traded for free.

Minimum deposit requirement for IRAs

TD Ameritrade is a no-minimum broker, and doesn't require a minimum investment to open an account. Interactive Brokers lowers its usual minimum to $5,000 for IRA accounts so that investors can open an IRA without going over the single-year contribution limit.

If global investments are important to you, the differences between discount brokers are substantial. Image source: Getty Images.

International stocks and ADR investments

Owning a piece of a domestic company by buying stock is pretty cool. Owning a stake of a global company is super cool. Depending on your needs, TD Ameritrade and Interactive Brokers make it possible to invest in companies that do business all around the world.

Type of Investment

TD Ameritrade

Interactive Brokers

American depositary receipts (ADRs)

Yes

Yes

Stocks traded on international stock markets

No

Yes (100+ markets)

Mutual funds and ETFs of foreign stocks

Yes

Yes

Data source: company websites.

Pay close attention to the differences between these two brokers. When it comes to buying stock on international stock markets, Interactive Brokers is one of a few discount brokers that offers that ability. Its clients can log in and trade stock on markets thousands of miles away.

TD Ameritrade clients can invest in individual foreign companies, too, but only if they have a ticker listed in the United States. Large foreign companies typically have an ADR, which trade on U.S. exchanges and are tradable on TD Ameritrade and Interactive Brokers alike.

Mobile app

Whether you're at home or on the road, you can check up on your account and make trades thanks to mobile trading apps for mobile phones and tablets. Here's how users recently rated TD Ameritrade's and Interactive Brokers' apps, as of Jan. 19, 2017:

Brokerage

Apple App Store

Google Play

TD Ameritrade

5.0 stars

3.5 stars

Interactive Brokers

2.0 stars

4.0 stars

Data source: relevant app stores.

IRA fees: maintenance and inactivity fees

TD Ameritrade doesn't have an IRA maintenance fee, nor does it charge an inactivity fee to infrequent traders. Interactive Brokers dropped IRA fees in January 2017, but it still charges an activity-based fee for smaller accounts.

You can avoid Interactive Brokers' fee by keeping an account balance of $100,000, or by generating at least $10 per month in commissions. If you spend less than $10 on commissions in any given month and don't have a $100,000 balance, you will be charged a fee to bring your commissions up to $10.

For example, if you spend $7 on commissions during the month, your account will be assessed a $3 fee on top to bring the total to $10 that month.

Research tools

Discount brokers aren't known for offering frills, but they don't leave their clients in the dark, either. TD Ameritrade offers research from S&P Capital IQ, Credit Suisse, and Morningstar, among others. Retirement planning calculators are numerous, and its Portfolio Planner service is a good way to benchmark your portfolio's performance and see if you're on pace to reach your retirement goals.

Interactive Brokers also provides a large library of research and content to its customers that includes analyst upgrades and downgrades, top news articles daily, compiled analyst ratings, plus a number of briefings and updates. Its mutual fund/ETF replicator is an interesting tool for IRA investors, as it allows you to find funds that are correlated to one another at a lower annual expense ratio.

Best for IRAs: Interactive Brokers or TD Ameritrade?

Depending on how you plan to invest, either broker could be a good choice for an IRA. Interactive Brokers has especially low commissions, and offers investments around the world, but its higher minimums and inactivity fees may be off putting to inactive investors. TD Ameritrade boasts no minimum account sizes, and a larger selection of funds, but commissions are higher than Interactive Brokers, perhaps making it less attractive for set-and-forget investors.

To be clear, The Motley Fool does not endorse any particular brokerage, but we can help you find one that is a good fit for you. Visit Fool.com's IRA Center to see how several leading brokerages compare on key features all on one page!

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Jordan Wathen owns shares of Interactive Brokers. The Motley Fool owns shares of and recommends TD Ameritrade. The Motley Fool recommends Interactive Brokers. The Motley Fool has a disclosure policy.