Best Online Brokers for 2012
The discount brokerage industry has come a long way since
Charles Schwab launched his business in 1975.
Today, many online discounters look more like the
they used to pooh-pooh. On top of the menagerie of investments
available, you can go to some discount brokers for a credit card,
a mortgage and other banking needs. More important, you can get
nearly all the research information once available only from
full-service brokers. Some discounters will even provide
This year, we reviewed ten firms. We analyzed each in six
broad areas. First, the obvious: fees and commissions, range of
investment options, research and tools that are accessible to all
clients, and banking services. We also measured the so-called
user experience -- the ease of navigation and functionality of
each Web site and app. Finally, we put the firms through a
customer-service test to vet their representatives' responses
over the phone, through e-mail and via online chat.
No firm aced every category. That meant the final outcome
depended to a large extent on how much we weighted the
categories. We based our weightings on what our readers consider
important: costs, 25%; investment choices and user experience,
20% each; research and tools, and customer service, 15% each;
banking services, 5%. (For more on how we ranked our picks, see
Best Online Brokers, 2012
.) Ultimately, you should decide what you consider most important
and choose a broker accordingly.
Slide through to see our rankings of the best online
In a mild upset, E*Trade carried the day in this year's
rankings. It isn't the lowest-cost firm -- it charges you $9.99
per transaction -- but its high scores in investment choices,
user experience, and research and tools propelled it to the top
of the list. According to the company, customers have access to
more than 50,000 bond issues. Plus, E*Trade offers access to
trading on 40 foreign exchanges from Austria to South Africa --
more than the typical 20 or so at other online brokers. E*Trade
also lets you trade 92 exchange-traded funds without paying a
Nearly all firms let you customize your viewing experience,
but E*Trade does a better job of it than most of the others. Just
click, drag and drop, and you can see what you want to see on
your online account summary page, where you want to see it -- and
that adds up to a great user experience.
As for customer service, E*Trade outdid the other online
brokers with its speedy responses to e-mails and its (mostly)
correct answers. The firm says it has been focusing on improving
customer service, and it showed.
When it comes to research and tools, Fidelity wins the race.
The firm offers 36 savings, tax and retirement calculators. It
also provides stock research from 12 firms, including Ned Davis
and Ford Equity Research.
Fidelity's investment choices also scored well with us. It
offers 31 no-fee
, the third most of our picks, and 1,710 no-fee mutual funds,
also ranking it third. Fidelity also reaped top marks for its
banking services despite having no bank affiliation.
But fees were a downer. Fidelity charges customers a whopping
$75 to buy shares in a mutual fund that is not included in the
firms' no-transaction-fee programs. To close a retirement account
And then there's its customer service: By phone, e-mail or
chat, we got varying responses to a question about whether a
Pimco bond fund carried a $75 fee to buy it (the fund is clearly
marked on Fidelity's Web site as a no-transaction-fee fund). The
correct answer: There's no charge to buy the Pimco fund, but you
will get slapped with a $75 fee if you sell within 60 days of
Scottrade scored well with us for its low fees and good
banking services. The firm charges just $7 per transaction for
stocks and ETFs and $17 for mutual funds outside of its
no-transaction-fee program. It's also fee-friendly on banking
services, offering no-fee checking and free ATM withdrawals. But
Scottrade does charge an annoying fee here and there. For
example, you'll be dinged $2 a month if you want to get a paper
statement in the mail.
In customer service, Scottrade suffered a low score. We're
still waiting for a response to an e-mail inquiry we sent in
4. TD Ameritrade
When it comes to investment choices, the champ for ETFs is TD
Ameritrade, which offers 101 ETFs without commission. It had the
second-most offerings of no-load mutual funds with 1,881 choices.
And TD Ameritrade matched Fidelity with stock research from 12
The downside: TD Ameritrade charges $9.99 per transaction.
It's probably not a surprise that TradeStation ranks high
overall in the category of investment choices. The firm was
founded in 2001 by brothers who developed their own trading
platform in the 1980s after they found others lacking. You have
to download a software program to run it, but if access to bonds
and options is your thing, this firm is for you.
TradeStation scored poorly when it came to its research and
tools, as well as customer service. It does offer some tools, but
it can't compete with the sheer number of tools and information
sources offered by the bigger firms. And for banking, we awarded
the company no stars -- it does not offer banking services at
Firstrade scored highly on investment choices. It offers
access to more than 6,000 mutual funds, but only 507 for no
Otherwise, this firm ranks in the middle of the pack. It
provides some tools -- including retirement-planning calculators
and screeners for stocks, bonds, funds and options -- but nowhere
near the number of tools and information sources offered by the
bigger firms. It also offers an iPhone app that lets you trade
stocks and options but not bonds or funds.
7. Charles Schwab
Schwab comes close to a perfect score in the banking category.
You can pay bills and deposit checks through the firm's phone
app, but its iPad app doesn't have the photo-deposit feature
(Schwab says that it's working on it).
For investment choices among no-fee mutual funds, Schwab
stands the tallest. The firm offers 2,263 no-load funds without
transaction fees, handily beating out second-place TD Ameritrade
with 1,881 no-fee funds and third-place Fidelity with 1,710
Schwab lost points with us on customer service. The firm does
not offer a chat feature and, worse, it failed to respond to an
8. Merrill Edge
"Google it." That's not what you want to hear when you call
your broker for help. But that's the response we got from a
Merrill Edge customer-service rep when asked if a specific bond
fund carried a front-end sales charge. It's also the reason the
firm landed at the bottom of the list in customer service.
Merrill Edge also fared poorly on investment choices. The
firm's range of offerings fell below average nearly across the
board -- from no-transaction-fee funds and no-commission ETFs to
corporate bonds, foreign bonds and even IPOs.
And when it comes to costs, Merrill Edge punishes customers
for moving money out: It will cost you $30 to wire money and $75
to move an IRA account. Although Merrill charges just $6.95 for
stock trades, it costs $39.95 to buy funds outside of its
no-transaction-fee network (the group average was $32) and $44.95
to execute a trade with a phone representative (group average,
Merrill Edge did score perfect marks on user experience and
banking. It helps to be tied to an actual bank -- Merrill Edge is
owned by Bank of America.
Just2Trade has a snazzy Web site, with an up-to-date design
and customizable click-and-drag windows. But the firm doesn't
have a smart-phone app. And its number of tools and amount of
research information are limited.
To trade stocks, bonds and funds, Just2Trade is light on costs
-- it charges only $2.50 a transaction. But it slaps you with a
$50 levy if you transfer your IRA to another firm. And it charges
$35 a year merely to keep your IRA.
The firm's customer service also left something to be desired.
One of its reps suggested we read the prospectus -- not a bad
idea on its own -- to find out whether a fund levied a load.
ShareBuilder earned high marks for its user experience and
banking services. It offers both bill payment and check deposit
on its phone and tablet apps but doesn't reimburse fees incurred
when you use an ATM outside its network, and that held the firm
back in this category.
But the firm's investment choices, tools and research
information were lacking. ShareBuilder also didn't offer a chat
feature for customer service.
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