SMART INVESTOR: Online Brokerage Firms Aren't Right For Everyone

Business Insider

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Online discount brokerage firms are becoming as common as smartphone apps these says.

And the slew of options can be just as useful as they are overwhelming for individual investors.

"Since most retail investors only have a couple of brokerage accounts where they manage their investments, it matters that you’ve picked the best online brokers for your needs,"  says  Susan Lyons, a senior strategy analyst for NerdWallet Investing,

The point is to help you save money –– not waste more of it with unnecessary fees.

Here's the key question you should ask before signing up for an online brokerage:

How often do I plan on trading? 

If you're an active trader (not that we recommend this approach for individuals), you'll have to really watch your trading fees. Some accounts charge anywhere from $5 to $200 per trade, depending on the extent of services you're looking for.

In reality, the vast majority of online brokerage investors average only two trades a month, according to Lyons. If you're part of that "buy and hold" club (kudos to you), you might be better off taking your investments elsewhere.

"While over 17 million investors have accounts at the three largest online brokerages—Schwab, eTrade, and TD Ameritrade—their financial filings reveal their average customer executes less than two trades per month," she says. "For the majority of users, this means they could be saving money on unnecessary fees—to the tune of over $1.8 billion total per year—by investing elsewhere."

Some online brokerages charge inactivity fees for sitting on your investments too long, which is like paying extra just for the pleasure of having someone hang onto your cash for you.

There are other hidden fees to consider as well. When Kiplinger rated 10 prominent online brokerage firms last year, it found Just2Trade was seemingly cheap at first glance –– $2.50 per transaction. But it charged a whopping $50 just to transfer your IRA to another firm, plus $35 to simply hold your IRA for you.



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