The Best Online Brokerages Reviewed
And which online broker is right for you?
|Written by Tom Yeung, CFA | CDFA
Investment Advisor & Fund Manager, Jurnex Financial Advisors
Are you trying to find the best online brokerage to open? You might already have a retirement account, but investing your additional savings can help fund even more goals, such as travel, children’s education, and additional retirement income.
But when it comes to opening an online brokerage, where to start? There are many firms out there, and it can be difficult to choose the right one for your investments. And if you’re not even sure you want an online brokerage, read our article on what type of investment account is right for you.
In this article, we review the top four online brokerages in the US
- Charles Schwab
- TD Ameritrade
What is an online brokerage?
Before we go into specifics, it’s best to cover what an online brokerage actually means.
In short, online brokerages are low-cost investment accounts for investors looking to buy stocks, bonds, and funds. These firms typically have very low trading fees since everything’s done by yourself online.
When you open an account and deposit money with an online brokerage, they will hold the money in your name. And when you decide to buy and sell stocks, the online brokerage acts as custodian for the assets.
Some online brokerages also offer in-person advisors or trade-by-phone options for an additional fee.
Why consider the top-4 largest online brokerages?
According to the Financial Industry Regulatory Authority (FINRA), there are 3,600 broker-dealers to choose from. Some of the larger ones include Etrade and Merrill Edge, but there are also a number of startups, including Betterment and Robinhood that offer great services too.
There are certain benefits of looking at the top-4 largest online brokers:
- Low-cost. Given the scale of the top-4 online brokers, they can offer low-cost trades at just $2-7 per stock transaction. All 4 also waive fees for hundreds of ETFs.
- Tons of resources. Each of the top-4 online brokerages has at least $1 trillion of assets under management, giving them unparalleled resources to support customers.
- Company stability. Smaller brokerages may change ownership, but larger players tend to be more stable.
- In-person financial advisors. All four online brokerages also offer in-person advisors for investors who want additional help.
There’s nothing wrong with going with a smaller firm. In fact, we’ve written an entire article about the best alternative investment accounts. But for most investors, the big-four offers some of the best online brokerage services available.
How do the best online brokerages compare?
There are a number of factors to consider when reviewing the best online brokerages.
1. How safe is your money?
All accounts at the four major brokerages are insured by the SIPC to $500,000, with a $250,000 maximum on cash. This won’t cover investment losses but will instead pay you back if any brokerage fails.
When it comes to financial stability, Fidelity tops the 4 as the best online brokerage.
Bond ratings by Moody’s
- Fidelity: A1 (Upper medium grade 1)
- Charles Schwab: A2 positive (Upper medium grade 2)
- TD Ameritrade: A2 neutral (Upper medium grade 2)
- Vanguard: not rated since company is a mutual (investor-owned)
(For comparison, both Bank of America and JP Morgan have A2 credit ratings as well)
Supplemental insurance per account
- Fidelity: $1 billion
- Charles Schwab: $600 million
- TD Ameritrade: $149.5 million
- Vanguard: $49.5 million
2. How low-cost are the best online brokerages?
One of the key reasons for using an online brokerage is the low cost of trading. While Vanguard used to be the leader in low-cost, the other three firms have caught up over time.
Of the top-4 firms, Fidelity edges out the other three companies.
- Fidelity / CharlesSchwab (tie): $4.95 per trade
- TD Ameritrade: $6.95 per trade
- Vanguard: $7 for the first 25 trades, $20 after. Price gets lower for larger accounts >$500,000
ETF expense ratios (using the S&P 500 index fund as an example)
- Fidelity: 0.015%
- Charles Schwab: 0.03%
- Vanguard: 0.03%
- TD Ameritrade: 0.03%, but need to pay purchase commissions
3. What do the best online brokerages let you invest in?
When it comes to choosing an online brokerage, you also want to make sure you can buy the companies you want. And when it comes to choice, Charles Schwab offers the most options for buying international companies. This can be an important step in diversifying your portfolio.
Vanguard, with its historic roots in ETFs, offers by far the most ETFs. This can be a great tool for people looking to invest in esoteric funds, such as international real estate or a fund that invests only in Vietnam
- Charles Schwab: US + 30 international markets
- Fidelity: US + 25 international markets
- Vanguard: US + 21 international markets
- TD Ameritrade: US only
- Vanguard: 1,800 funds available
- TD Ameritrade: 550
- Fidelity: 500+
- Charles Schwab: 500+
Winner: Charles Schwab / Vanguard (tie)
4. Quality of the trading platform
All four firms have very similar trading platforms for the occasional trader. Which platform you choose is a matter of personal taste.
If the trading platform matters to you, make sure you make use of free walk-throughs offered by the four companies. This will let you test out their website without actually trading any securities.
Mobile apps follow the same principle. All have their benefits, but it comes down to personal preference. Here, however, Fidelity seems to have an edge over its competitors.
Mobile app rating on Google Apps
- Fidelity: 4.5 stars
- Charles Schwab: 4.2 stars
- Vanguard: 3.8 stars
- TD Ameritrade: 3.7 stars
For those who want the option to day-trade, TD Amertrade’s ThinkOrSwim platform is probably the best of the four. Schwab offers StreetSmart Edge, but TD has put far more effort into building out their trading platform. TD Ameritrade also offers a standalone app for mobile trading.
Winner for desktop: 4-way tie
Winner for day-trading: TD Ameritrade
5. Does the online brokerage have physical locations?
Even if you want to invest by yourself, there could still be times you might want advice or financial planning. All four online brokerage firms offer some form of personal investment advice from a dedicated advisor. TD Ameritrade and Charles Schwab have the widest reach.
- TD Ameritrade: 360 in 40+ states
- Charles Schwab: 345 in 46 states
- Fidelity: 190 in 40 states
- Vanguard: online only
Winner: TD Ameritrade / Charles Schwab (tie)
So which is the best online brokerage for you?
Each of the top four online brokerages has different benefits. Now that we’ve covered the various dimensions of what makes the best online brokerages, let’s see which one is best for you.
Overall winner: Charles Schwab
Our top pick for best online brokerage goes to Charles Schwab, the most well-rounded of the 4 online brokerages. That’s because if you’re newer to investing, or not sure what you’ll need in the future, Charles Schwab offers the flexibility you need.
Fees at Schwab are comparable with Fidelity’s, and the company offers more options for people looking to invest internationally. The company also has a highly established branch network of investment pros for those who change their minds and want in-person financial advice.
So while the company might not lead in any single category, Schwab remains the best choice for people looking for a well-rounded investment company.
Runner up overall: Fidelity
Our close runner-up for best online brokerage goes to Fidelity, the cheapest online brokerage for people just starting out.
Fidelity built its legacy on mutual funds. In fact, some of the most famous and best-performing mutual fund managers in US history include Fidelity managers, among them Peter Lynch and Will Danoff. Yet Fidelity has kept up with the times, slashing fees to compete with Vanguard. As of 2019, Fidelity has some of the lowest expense ratios for ETFs.
If you want some of the lowest fees in the industry, Fidelity would be a fine choice to go with.
Best for frequent traders: TD Ameritrade
Even though TD Ameritrade doesn’t win our “top-overall” pick, the company might still be the best choice for frequent traders. That’s because TD Ameritrade was the first company to offer electronic trading in the ’90s, and it hasn’t looked back since.
The moment you start using TD’s trading platform, you’ll instantly feel how much the company has put into developing the system. Its ThinkOrSwim learning center also offers unparalleled amounts of information for people who want to learn day-trading.
Note: if you plan on doing >500 trades per month, we’d suggest you explore online-only brokerages too, such as Interactive Brokers. That’s because fees can be even lower for high-volume traders.
Best for “set and forget” investing: Vanguard
Vanguard remains our top-pick for passive investors. The company offers an astonishing 1,800 commission-free funds, making it ideal for investors who want to buy and hold investments without much trading.
The company also operates as a mutual. In other words, the company is owned by its funds, which in turn are owned by their shareholders—including you. That means all profits from the company go back to you as an investor. Even though their ETF loads are currently 0.015% higher than Fidelity’s, you may still end up with a better long-run outcome as industry fees continue to decline.
Want more help choosing an online brokerage?
If this seems like a lot of information, don’t worry. The great news is you don’t have to do it alone. There are plenty of investment pros who understand the importance of choosing the right brokerage account for your investment needs. In fact, all it takes is a phone call to get in touch with a pro investment advisor today.
Where to find more resources
If you’re looking to revamp your stock portfolio, there’s no better time than now.
That’s because I’ve helped invest client money for over a decade in the same old-fashioned way: seek out great companies in great industries that can be purchased at a discount to their fair value. Sounds too simple to be true? Give me a call today and I’ll show you that it’s still possible after all these years.
We are an independent registered investment advisor and asset manager. We have the securities backing of Charles Schwab, yet we retain our operational independence from any third party. This means you can have the confidence your money is safe with one of America’s best brokerages and still receive knowledge and advice from an independent firm focused on YOU.
Want to learn more?
*Disclaimer: While I do work with Fidelity, Charles Schwab and Vanguard for client accounts, I’m not compensated by any of the 4 brokerage firms reviewed here. This is an unbiased review based on facts, and my experience working with them.