How to Find the Best Online Broker

If you're looking for the best online broker, look no further. This past October, Kiplinger found E*TRADE to be the "Best Online Broker for 2012." But wait -- the folks at named OptionsHouse the "Best Online Broker" for 2013. And SmartMoney's last ranking of brokerages, in 2012, put Fidelity on top. What's going on? Well, it all depends on which criteria you use to determine the rankings. And even if all these lists agreed on the "best" brokerage, it might not be the best one for you. It all depends on your needs.

First off, if you're looking for a great online broker because you want to invest in the stock market, bravo! There aren't many better ways to build long-term wealth. But before you fill out an application form and send in some initial dollars with which to invest, think through the decision carefully. Make a list of the features you want in an online broker, and see how the candidates for your business fare on each count. Below are a few categories to consider.

Definitely consider the trading commissions and other fees levied by any online broker. But you might not want to give this category too much importance, if, for example, you don't trade too often. If you only trade about four times a year, a brokerage that charges as much as $25 per trade will only collect $100 from you. But if you trade 20 times per month, then the difference between a $5 and a $10 trading commission will be $1,200. It's pretty easy to find trading commissions of less than $10 these days. If you plan to be using margin (i.e., borrowing money from your broker with which to invest), look into the interest rates it charges.

Account minimums are important, because a steep one might be a deal-breaker for you. Minimums for regular cash accounts or retirement accounts (think IRAs) at well-known online brokers can be as little as $0 or as much as $2,000 or more. Margin accounts typically have higher minimums.

Mutual funds and other investment options
If you'd like to invest in mutual funds in your brokerage account, look into the range of funds offered by the online brokers you're considering. Some offer a few, and others offer many hundreds. (You can usually invest in a fund directly through the fund company, but it can be easier and more convenient to do so through your brokerage account, if possible.) If you want to invest in options, bonds, ETFs, CDs, or foreign stocks, look into whether they're offered by the brokerage. You might also check the commission costs for these kinds of transactions, as a simple mutual fund trade could cost you just a few dollars or more than $50, depending on the brokerage.

Most reputable online brokerages these days offer research services to their customers, permitting you to read analyst reports on companies in which you're interested, or to look up and compare lots of data on all kinds of companies. If you're very interested in using these perks, then look into which online broker offers what. In 2012, SmartMoney rated Fidelity tops in research.

Customer service
It's easy to overlook customer service... until you're using an online broker and suddenly find that you hate theirs. So do some digging beforehand. Consumer Reports looked at brokerages and financial companies and gave top marks for customer service to USAA, with Scottrade and Vanguard also singled out and fully 10 of 13 companies examined proving satisfactory. In 2012, SmartMoney rated TradeKing tops in service.

Other services
Think about other services you might want from your brokerage. USAA, which serves folks in the military and their families, offers much more than just brokerage services, providing banking and insurance, for example. Other brokerages also offer banking services, which might prove handy for you. Just be sure to read through the rules, terms, and fees. Your neighborhood bank or credit union might remain the better choice.

Brick-and-mortar and humans
Finally, think about whether you'd like an actual physical location to visit on occasion. Some online brokers have brick-and-mortar locations, while others are purely online. Similarly, if you think you might want to place some orders in person or over the phone, via an actual representative instead of a recording, look into whether that's possible -- and if it is, what it will cost. Trading commissions can be as steep as $49 or more if you go through a representative with some brokerages, while others have few or no reps available to take your orders. You might try to see what a brokerage's online interface is like -- if it seems easy to use, as many are, you may find you just don't need a human.

To find the online broker best for you, think about the features most important to you. You can compare several well-regarded online brokers in our broker nook -- or check out the rankings linked to near the top of this article for more information. It doesn't hurt to ask around among friends and family, too, to see who seems most happy with their online broker, and why.

Once you've found the best broker, make sure you're using the best investing approach: Choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 25, 2013, at 5:39 PM, Mega wrote:

    What were the criteria for selecting the featured brokers?

    Notice how the Fool Disclosure doesn't disclose any relationships with online brokers, despite the fact that many of them advertise on the site?

    Isn't that what disclosure is actually for?

  • Report this Comment On June 25, 2013, at 5:43 PM, Mega wrote:

    Oops, my bad. I was looking at the legal notes below the Fool Disclosure. I see that it's actually a link to a more complete disclosure webpage that answers some of my questions.


  • Report this Comment On July 11, 2014, at 3:49 AM, 333stocker wrote:

    I have been using Scottrade for about one year now, platform seems to have everything that is necessary for a good trading experience. After first opening the account I received a call from customer service, they were friendly and helpful and offered to schedule an appointment to visit a nearby branch to discuss how to properly use website/platform. After the visit I was surprised by how much interest they showed in helping me to become as familiar with their services as possible. Here's a code for 3 free trades at sign up in case anyone is interested: DCUJ6643

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