How to Find the Best Online Discount Broker for You

Online discount brokers have been gaining in popularity for years, as more and more investors are deciding to take this low-cost, more independent approach to creating and managing their portfolios. With an online discount brokerage account, you can trade any stocks, bonds, and funds you want, in the U.S. or internationally, and they charge much lower fees than their full-service counterparts. Here are some things to consider when shopping around for the right one for you.

Online discount broker vs. full-service broker

The rise of online discount brokers has truly opened stock investing up to the average person, and over the years, they've evolved to offer some pretty impressive features, such as thorough investing education, portfolio guidance, and access to corporate research.

An online discount broker can let you invest from the comfort of your home. Image Source: Getty Images.

Full-service brokers provide you with more guidance and investment recommendations, but those benefits come at a steep price. Discount brokers typically charge no more than $10 for a basic stock trade; full-service brokers often charge many times that amount. Since you're reading this, I'm assuming that you've already decided not to go the full-service route (good call!), so let's take a look at how you can compare online discount brokers to find the best one for you.

Start with commissions and account minimums

As I mentioned, most online discount brokers charge no more than $10 to execute a basic stock trade, and some charge significantly less. For example, as of this writing, Capital One Investing's commission is $6.95 per client-initiated stock trade, and it offers automatic investments for just $3.95. However, as I'll explain shortly, commissions are only one thing you should consider -- and they shouldn't necessarily be a major factor in your decision.

Account minimums, on the other hand, can be an important factor, especially for investors just getting started who may not have a ton of money to invest. After all, it doesn't really matter how cheap the commissions are or what features a broker offers if you can't afford to open an account. Several brokers have no minimum initial requirement for a cash (non-margin) account, while others have minimums as high as $10,000.

But consider what else you get

Obviously, all other things being equal, it's best to go with a lower-cost broker. However, be sure to take a thorough look at what else you get -- and what else you need.

For example, many online discount brokers offer fantastic educational resources, which can be incredibly valuable if you're new to investing. Many also offer access to premium investment research. In the interests of full disclosure, I use TD Ameritrade for my investment accounts. Their standard commission of $9.99 per trade is a bit on the high end, but they have an extensive assortment of resources to use, and I find their platform extremely user-friendly and easy to navigate.

There are other factors to consider as well, such as convenience. For example, if you already bank with Bank of America, you may want to look into the brokerage accounts it offers through its Merrill Lynch division, which can be easily linked to your existing bank accounts.

Finally, many brokers offer incentives to attract new customers, especially those who are ready to make high initial deposits. To name one example, E*TRADE is currently advertising a $200 bonus, plus up to 60 days of free trades, with an opening deposit of $25,000 to $99,999.

How to open an account

You can read a complete checklist of how to open an account with an online discount broker here, but here's an outline of the basic steps.

  1. Decide what type of account you want, such as a standard brokerage account, or an IRA to invest and save specifically for retirement.
  2. Compare several online brokers to find the one that best meets your needs. Look at the commissions each one charges, the support they offer, how large an initial deposit they require, and other factors. The Motley Fool's IRA center is a good place to compare IRA options, and you can also compare brokers here.
  3. Fill out a new account application with the brokerage of your choice.
  4. Deposit money in your account, which you can usually do via electronic fund transfer or by check.
  5. Start investing and taking advantage of the features offered by your new broker.

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Matthew Frankel owns shares of Bank of America. The Motley Fool owns shares of and recommends TD Ameritrade. The Motley Fool has a disclosure policy.