Interactive Brokers vs. Fidelity for Traditional and Roth IRAs

By Jordan Wathen Markets Fool.com

Where you open an IRA account is more important than it may seem. Which broker you choose will ultimately determine what you can invest in, how much you pay for each trade, and how much support you receive along the way. Below, we'll take a look at two popular choices, Interactive Brokers and Fidelity, to see how their IRA accounts compare on costs, benefits, and features.

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Commission prices and trading costs

Interactive Brokers and Fidelity are very different when it comes to pricing, with the former favoring variable pricing to the latter's fixed commission schedule. The table below shows how they compare by investment type.

Brokerage

Stocks and ETFs

Stock Options

Mutual Funds

Interactive Brokers

$0.005 per share ($1.00 minimum)

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

$14.95 per purchase

Fidelity

$7.95 per trade

$7.95 + $0.75 per contract

$49.95 per purchase

Data sources: Company websites.

Stated prices aren't the end-all, be-all when it comes to what you'll pay to make a trade. To understand your true trading costs, you have to take discounts and free trades into consideration, too.

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For example, both brokers offer free trading in thousands of funds, which reduces their customer's average trading cost. Similarly, savvy investors use special offers for IRAs to their advantage, collecting rebates, cash bonuses, and commission-free trades that can add up to thousands of dollars in benefits.

Mutual fund selection and commission-free choices

If you like funds, you'll love the wide selection available to clients of Fidelity and Interactive Brokers. Both companies have more than 3,000 combined mutual funds and ETFs that you can buy and sell without paying a dime in loads, commissions, or transaction fees.

Brokerage

Total Mutual Funds

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

Commission-Free ETFs

Interactive Brokers

More than 8,200

More than 2,900

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

Fidelity

More than 11,500

More than 3,600

91 (Fidelity and iShares)

Data sources: Company websites and representatives.

If you have any particularly loyalties to a fund sponsor, it would be wise to see if your ideal funds are on a broker's list of freebies before opening an account. If not, many funds have close substitutes that can be used to take advantage of commission-free trades without sacrificing investment results.

Minimum deposit requirement for IRAs

These two brokers have wildly different initial deposit requirements. Fidelity doesn't require a minimum deposit, so you can start with as much or as little as you'd like. Interactive Brokers has a $5,000 minimum deposit to open an IRA, though, which may be limiting for investors who are just getting started.

Investors who are just getting started might prefer a no- or low-minimum IRA account. Image source: Getty Images.

International stocks and ADRs

We have good news: Fidelity and Interactive Brokers are both on the short list of discount brokers that offer broad access to international stock exchanges. Whereas most brokers limit trading only to U.S. tickers, these two brokers offer the ability to place trades on exchanges around the world.

Type of Investment

Interactive Brokers

Fidelity

American depositary receipts(ADRs)

Yes

Yes

Stocks traded on international stock markets

Yes (25 markets)

Yes (100+ markets)

Mutual funds and ETFs of foreign stocks

Yes

Yes

Data sources: Company websites.

In general, trading overseas comes with higher commissions and fees. Interactive Brokers and Fidelity both throw out their standard commission prices for international orders, and they charge commissions that vary depending on the stock exchange and currency.

Mobile app

You can make trades or simply check your account balance on the go with apps for phones, tablets, and other mobile devices. Here's how each brokers' users and clients rated their apps (as of January 25, 2017).

Brokerage

Apple App Store

Google Play

Interactive Brokers

2.0 stars

4.0 stars

Fidelity

2.0 stars

4.0 stars

Data sources: Relevant app stores.

IRA fees: maintenance and inactivity fees

Investors should be mindful of two sneaky fees that can add up after you open an IRA. The first is a maintenance fee, or service fee, which is essentially a fee just for having an account. The second type of fee is an inactivity fee, which is charged to accounts that do not meet minimum activity requirements.

Fidelity doesn't charge either kind of fee. Interactive Brokers accounts can be charged inactivity fees when they fail to generate $10 or more in commissions in any given month. For example, if you generate only $2 in commissions in one month, Interactive Brokers will assess an $8 fee to bring your commissions to $10.

You can avoid Interactive Brokers' fee by keeping a balance of more than $100,000, or by spending more than $10 in commissions each month.

Research and retirement planning tools

Fidelity and Interactive Brokers will find that each broker offers plenty when it comes to research. Both offer the ability to view analysts' upgrades and downgrades, read research on thousands of stocks from third-party providers, and scan stocks and funds based on quantitative screening tools.

They also offer free tools designed to help you build a better portfolio. Fidelity's Planning & Guidance Center makes it easy to see how you're progressing toward your goals with a Retirement Preparedness Measure (out of 100) to score your progress. It also compares your portfolio to a model portfolio for people in a similar financial situation to highlight any gaps in your portfolio.

For the cost-conscious, Interactive Brokers' Mutual Fund and ETF Replicator helps find lower-cost funds with similar historical performance. It also ties into its Covestor platform, which offers numerous low-cost index portfolios, in addition to actively managed portfolios.

Best for IRAs: Interactive Brokers or Fidelity?

Depending on how you manage your portfolio, either could be a good fit for an IRA. Interactive Brokers boasts some of the lowest commission prices, which is a boon for active investors, but low-activity investors may be turned off by a monthly minimum on commissions and its $5,000 initial deposit requirement. Fidelity offers a diverse list of mutual funds and ETFs, many of which are fee-free to buy and sell, but its commissions are generally higher and its international options fewer than Interactive Brokers.

Realistically, there isn't one brokerage that is a best fit for every single investor. It all depends on how a broker's features fit into the nuances of your portfolio. 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. VisitFool.com's IRA Centerto compare brokers by key features and to see if you qualify for bonuses for opening an account.

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