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 full-service brokerages 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 investment guidance.
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 brokers.
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 commission.
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.
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 all.
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.
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.
OVERALL: Costs: Invest. choices: User experience: Research/tools: Cust. service: Banking:
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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.