TradeKing vs. Vanguard: Comparing Brokers for IRA Accounts

By Jordan Wathen Markets Fool.com

Many investors turn to individual retirement accounts for two big advantages: tax efficiency and greater investment selection. But when it comes to actuallyopening an IRA account, you shouldn't pick a broker blindly. The broker you choose affects everything from how much you pay in fees and commissions, to what you can invest in, and your ultimate investment returns.

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Let's examine how two popular discount brokerages, TradeKing and Vanguard, compare for IRA accounts.

Commission prices

The truth is that trading prices are almost universally lower today than at any point in the past, and thus pricing doesn't differ all that much from broker to broker. The following table compares the standard commission prices TradeKing and Vanguard customers can expect to pay on an IRA.

Brokerage

Stocks and ETFs

Stock Options

Mutual Funds

TradeKing

$4.95 per trade

$4.95 per trade + $0.65 per contract

$9.95 per purchase

Vanguard

$7.00 per trade

$20.00 per trade + $1.00 per contract

$35.00 per purchase

Data source: company websites.

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Discounts are common, and standard prices can be more of a guide than a rule. Vanguard, for example, slashes commission prices for customers who keep more of their IRA invested in its mutual funds and ETFs. Likewise, it offers all investors the opportunity to invest in some funds and ETFs without paying anything at all in commissions.

Savvy investors should takespecial offers for IRA accountsinto consideration. Investors often qualify for commission-free trades, or even a cash bonus, just for opening a new account.

Mutual funds, ETFs, and commission-free choices

If you're a fund investor, you may want to be choosier when it comes to picking a broker. The funds you can buy, as well as what you pay to buy them, vary by the brokerage.

Brokerage

Total Mutual Funds

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

Commission-Free ETFs

TradeKing

More than 12,100

None

None

Vanguard

More than 7,500

More than 1,300

70 (Vanguard ETFs)

Data sources:Barron's, company websites, and representatives.

Realistically, most investors can build a diversified portfolio with just a handful of funds, so what matters is whether your favorite funds make the cut on a broker's fee-free list. Vanguard has more than 1,400 fee-free mutual funds and ETFs, but funds that aren't on its list would be less expensive to buy at TradeKing, given its lower standard commission price.

Minimum deposit requirement for IRAs

Whether you want to start big by maxing out an IRA on day one, or build your account over time, TradeKing or Vanguard could work for you. Neither company has a minimum initial deposit requirement for new accounts, so you can get started with as much or as little as you'd like.

No minimum IRAs can be great for tax planning, as you can deposit what's best for you. Image source: Getty Images.

International stocks and ADRs

If you'd like to invest in foreign companies, you'll want to examine closely this table. Some brokers offer access only to foreign stocks that trade domestically (for example, TradeKing), while others also offer the opportunity to send trades to international stock exchanges (for example, Vanguard).

Type of Investment

TradeKing

Vanguard

American depositary receipts(ADRs)

Yes

Yes

Stocks traded on international stock markets

No

Yes (Vanguard's Block Desk)

Mutual funds and ETFs of foreign stocks

Yes

Yes

Data source: company websites.

The truth is that discount brokers that offer access to international markets are less common, so if trading on foreign markets is important to you, you'll have to choose from a smaller set of brokers.

Mobile app reviews

You can check your account and make trades from your mobile phone or tablet from anywhere around the world. Here's how each broker's users and customers rated their mobile trading apps, as of Feb. 24, 2017.

Brokerage

Apple App Store

Google Play

TradeKing

1.6 stars

4.1 stars

Vanguard

2.3 stars

4.2 stars

Data source: relevant app stores.

Fees on IRA accounts

You should review a broker's fee schedule before opening account, but two common fees may be deserving of some special attention. Maintenance fees are charged to customers just for having an account, and inactivity fees are charged to customers who don't meet the brokers' minimum trading requirements.

If you know the rules ahead of time, you can usually avoid one or both fees on your IRA.TradeKing has an annual inactivity fee of $50, but you can avoid it by making at least one trade per year, or maintaining a balance of $2,500 or more. Vanguard charges an annual account service charge of $20.00, but you can avoid this fee by keeping a $10,000 balance or opting in to receive documents (statements and annual reports) electronically rather than by snail mail.

Which is better: TradeKing vs. Vanguard for an IRA?

The better broker ultimately comes down to how you want to manage your IRA. Vanguard may be a natural pick for investors who prefer its index mutual funds and ETFs, given they're on its commission-free list. TradeKing might win over more active traders, who prefer its lower-cost stock and option commissions.

To be clear, The Motley Fool does not endorse any particular brokerage, but we can help you find one that's a good fit for you. VisitFool.com's IRA Centerto compare several brokers all on one page, and see if you qualify for any special offers for opening a new account.

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