If you invest mainly for retirement, you may not be too concerned about brokerage fees. After all, you’ll likely pick an investment and stick with it, so a few high commissions won’t matter.
But unfortunately, commissions aren’t the only way brokerages take a bite out of clients’ profits. And some fees affect infrequent investors as much as, if not more than, frequent ones. No matter how often you plan to invest, here are four fees you’ll want to keep in mind:
1. Inactivity fees and custodial fees
Some brokerages charge customers for going too long without making a trade or for opening an IRA. For instance, TradeKing customers who’ve gone a year without trading are slapped with a $50 fee. Other firms are even less forgiving. SpeedTrader charges investors who make fewer than 15 trades each quarter $120 per year and a $75 custodial fee for IRAs. And TradingBlock charges IRA accountholders $45 each year.
The good news? Fewer and fewer brokerages are charging for inactivity or IRAs. Many brand name firms like E-Trade and Charles Schwab no longer penalize infrequent investors, and those firms that do, usually offer exemptions. TradeKing only charges customers whose combined household accounts total less than $2,500, and many companies exempt IRA investors.
2. Statement fees
“Every investor needs to look at their custodian’s policy on receiving paper statements,” says Peter Ashby of Adams Ashby Financial Advisors in Roseville, California. “The paper statement fee can be a flat amount, around $5 per month, or an amount they charge you for commission on trades.”
Firstrade levies a $5 fee on each paper statement mailed to one of its online brokerage users; Scottrade charges $2. TD Ameritrade and E-Trade also charge $2, but only for those who don’t meet certain account requirements.
Unlike inactivity fees, paper statement fees are on the rise. In fact, it’s increasingly hard to find a brokerage without them. Of course, you can always avoid them by going paperless or meeting your brokerage’s account requirements.
3. Mutual fund or ETF commissions
Popular with retirement investors, mutual funds and exchange-traded funds (ETFs) can be free to trade at most brokerages—as long as the fund you want is on your firm’s list. Otherwise, you’ll have to pay a commission that’s often double the cost—if not more—of a stock trade. E-Trade charges $19.99 for transaction-fee funds. At TD Ameritrade, they’ll cost you $49.99.
To avoid getting slapped with this type of fee, make sure the fund you want is on your brokerage’s no-fee list before buying. For example, 1,300 of E-Trade’s mutual funds trade commission-free. And Ameritrade offers hundreds of no-transaction-fee funds, including funds from PIMCO, Morgan Stanley and T. Rowe Price. If your heart is set on a particular fund that’s not on the list, try buying directly from the fund family to avoid commissions.
4. Account transfer fees
Unhappy with your brokerage’s service? Moving your account may cost you.
“Many people don’t realize that many custodians charge up to $75 to transfer an account out in full,” Ashby says. “Where I see this becoming an issue is when people have opened accounts [with] many different custodians. When they start to consolidate these accounts, the fees can quickly add up to a few hundred dollars.”
Almost every brokerage penalizes customers who transfer their accounts to another firm. TD Ameritrade, Scottrade and Firstrade all charge $75. E-Trade is cheaper, at $60 for a full account transfer, and TradeKing charges $50 for the service.
Fortunately, most investors can avoid transfer fees. “Ask the custodian you are transferring to if they will cover these charges for you, as many of them will,” Ashby adds.
Don’t be surprised by fees
Depending on how you choose to access your cash, your brokerage may charge other fees that can stack up over time. Some fees can be avoided by maintaining certain account requirements; others, you’ll simply have to absorb. The smartest move is to research a brokerage’s charges before you sign up. Even if you can’t dodge some fees, you won’t be left scratching your head when you see your account statement.
Alice Holbrook writes about investing and insurance for NerdWallet, a website that helps consumers make smarter financial decisions.