Once you've mastered your personal finances, balanced your budget, and established some emergency savings, it may be time to start investing for the future. To make an investment, you'll need to open a brokerage account. Two well-known brokerages,TD Ameritrade and Interactive Brokers, offer a wealth of features for individual investors. Here's how the two brokers compare for individual investors.
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Trading costs and commissions
Discount brokers have universally low trading costs, and TD Ameritrade and Interactive Brokers are no exception to this rule. The following table shows both brokers' published rates for completing stock, options, ETF, and mutual fund transactions.
Data source: company websites.
Notably, Interactive Brokers charges its clients a minimum fee of $10 in monthly periods where they don't generate more than $10 in trading commissions. In addition, the following table reflects Interactive Brokers' fixed commission schedule; investors who elect to trade under its tiered commission schedule may pay less in commissions.
Promotional offers may substantially reduce your trading costs. See our page on special offers for IRAs, which is updated frequently with new promotions specific to IRA accounts.
Commission-free funds and trades
TD Ameritrade and Interactive Brokers offer investors the opportunity to invest in so-called no-transaction-fee (NTF) ETFs and mutual funds. Here's how these brokers' NTF fund selections compare.
Data source: company websites.
Importantly, NTF funds still carry annual management fees that may dwarf the transaction fee over time. However, investors who use ETFs and mutual funds in their portfolio should see if their favorite funds are on brokers' NTF lists, as they may be able to avoid at least one expense that comes with investing in ETFs and mutual funds.
Minimum account sizes are one of the biggest differentiating factors for TD Ameritrade and Interactive Brokers. TD Ameritrade offers no-minimum accounts, allowing investors to get started with as little as $1. Interactive Brokers has a standard minimum account size of $10,000, which is reduced to $5,000 for IRAs, and $3,000 for investors younger than 25.
Here at The Motley Fool we take a long-term, buy-and-hold approach toward investing. For this reason, we're probably the wrong people to ask about the quality of a trading platform, since we don't tend to spend that much time in our brokerage accounts.
Both TD Ameritrade and Interactive Brokers offer trading platforms that suit the needs of long-term investors. In truth, it's mostly personal preference, so we'll let you be the decision maker on this one.
International stocks and ADRs
TD Ameritrade clients can buy and sell American depositary receipts (ADRs) but lack direct access to foreign stock markets. Thus, TD Ameritrade customers are mostly limited to foreign companies that are large enough to justify an ADR on an American stock exchange.
Interactive Brokers' clients can trade on a number of domestic and foreign exchanges. It offers trading on over 100 markets across 24 different countries, so it would be a better choice for investors who want to trade stocks listed on international exchanges.
Importantly, both brokerages allow trading in American ETFs and mutual funds that hold foreign stocks. Therefore, for fund investors, the difference is less substantial.
Discount brokers allow you to save money on trading costs, without sacrificing too much in the way of research or features. Image source: Getty Images.
Research quality and tools
Online discount brokers are an alternative to full-service brokers. Their main promise was that online brokers could eliminate a lot of trading costs by providing fewer services. However, over time, discount brokers have rolled out more research tools to their clients.
TD Ameritrade and Interactive Brokers have plenty of research tools to keep you informed. You can access third-party insight from Thomson Reuters and Morningstar on both services. In addition, proprietary screeners and market scanners enable you to sort through stocks and funds by fundamental factors such as historical returns and earnings results.
If you want to trade from a mobile phone or tablet, you might be interested in how customers of both brokers rate their mobile apps on iOS and Android devices. Ratings are as of Dec. 1, 2016.
Data source: relevant app stores.
Picking the broker for you
Long-term buy and hold investors will find that TD Ameritrade and Interactive Brokers have features and benefits that satisfy their needs, offering low-cost trades, NTF funds and ETFs, in addition to research tools that provide a wealth of information about their investments.
To be clear, The Motley Fool does not endorse any particular broker, but we can help you compare all the options available to you. Head on over to the Fool.com Broker Center to compare current offers for online brokers.
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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. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.