Ally Invest vs. Interactive Brokers: Where to Open an IRA

This article was updated on Feb. 8, 2018 and originally published March 11, 2017

Getting started with a tax-deferred or tax-free retirement account like a Roth or Traditional IRA may be the smartest move you could ever make for your financial future. IRAs can shield your investment returns from Uncle Sam, while giving you the opportunity to pick the specific stocks, funds, and ETFs that you hold in your portfolio.

Deciding where to open an IRA account can be a chore, however, as fees and features vary among the hundreds of companies that can house your account. Below, we'll compare Ally Invest and Interactive Brokers to see how their features and prices compare for different types of investors. 

Commission prices -- costs matter

When fixed commission prices were eliminated in the 1970s, discount brokers quickly emerged to start offering trades at lower and lower prices. Today, most brokers now offer trades that start at less than $5.00, making price perhaps less important than it was before. Commissions at Ally Invest and Interactive Brokers are shown by trade type in the table below.

Data source: company websites.

The big difference between Ally Invest and Interactive Brokers is that one uses fixed pricing, versus variable pricing for the other. Interactive Brokers' commissions are charged on a per-share and per-contract basis and can decrease based on trading volume when investors make use of its tiered pricing schedule. Ally Invest's commissions are flat, and thus trading costs don't vary with the size of the trade.

Keep in mind that published prices are really just that -- published prices. Frequently, brokers have special offers for opening a new IRA, which can entitle you to hundreds of free trades or cash bonuses for opening an account. It may be smart to think of these bonuses as effective discounts on a broker's published prices.

Mutual funds, ETFs, and commission-free funds

Ally Invest and Interactive Brokers offer thousands of funds, but which is better for any given person greatly depends on the specific funds you intend to invest in. Ally Invest has the lowest commission for mutual fund trades at $9.95, versus $14.95 for Interactive Brokers.

However, Interactive Brokers offers thousands of no-transaction-fee (NTF) mutual funds and commission-free ETFs that you can invest in without paying a transaction charge. Ally doesn't. 

Data source: Company websites.

If you plan to invest in mutual funds, then the brokerage you pick may be especially important. Note that many brokers now offer thousands of mutual funds and ETFs that are free to trade, but which funds make the freebie list varies by brokerage.

Minimum deposit requirement for IRAs

Before we go much further, it may be wise to check each broker's minimum deposit requirements. Ally Invest is a no-minimum IRA broker, so you can start by depositing as little as a dollar bill. Interactive Brokers currently requires $5,000 to open an IRA, a lower bar than the $10,000 minimum for its taxable brokerage accounts.

Depending on your personal situation, a broker's minimum investment may be more or less important to you. That said, some brokers provide financial incentives for depositing more than the minimum, so see if depositing more could score you some perks before deciding on your initial deposit amount.

Minimum deposit requirements can be a difference maker for people who are just getting started. Image source: Getty Images.

International stocks and ADRs

As the world grows more connected, investors are sniffing out investments all around the world. But some brokers may be better suited for investing internationally than others. In this case, both Ally Invest and Interactive Brokers allow you to buy foreign stocks with tickers on U.S. exchanges, but only Interactive Brokers provides the opportunity to send trades to foreign stock exchanges.

Data sources: company websites and representatives.

Ultimately, the differences between brokers frequently boil down to whether or not you need to go overseas to buy a stock. Many of the world's largest foreign companies have a ticker in the U.S., so you can invest in them regardless of the broker you choose. BP is based in Britain, but it also has a listing on the New York Stock Exchange, for example.

For smaller companies, you'll usually have to go direct to their home exchange. Only a few online discount brokers currently offer the ability to trade stocks listed on international markets, so you'll have fewer choices if international access is a top priority.

Mobile app reviews

You can check your account and make trades from your mobile phone or tablet from anywhere around the world. Here's how each broker's users and customers rated their mobile trading apps, as of Feb 8, 2018.

Data source: relevant app stores.

Fees on IRA accounts

It's wise to go over any broker's fee schedule with a fine-toothed comb, but two fees are worth pointing out because they're common, but avoidable if you know how they work. The first is an IRA maintenance fee, or IRA service charge, which investors pay just to have an account. The second is an inactivity fee, or a charge for failing to meet a broker's minimum trading requirements.

Interactive Brokers eliminated maintenance fees for IRAs in 2017, but it does charge inactivity fees. Its inactivity fee comes in the form of a $10 minimum on commissions each month. Thus, if a customer pays just $2 in commissions in one month, he or she will be charged an extra $8 to bring the total to $10. The only way to avoid this fee is to keep a balance of $100,000 or more, or by trading enough to generate at least $10 in monthly commissions. Ally Invest doesn't charge maintenance or inactivity fees on IRAs.

Ally Invest vs. Interactive Brokers: IRA brokers

The truth is that the best broker for one person may be the worst for another, as each has its advantages and disadvantages for different types of investors.

Interactive Brokers' commission structure rewards high-activity traders, but less active retirement investors may be put off by inactivity fees and may not reap much savings from its lower commission prices. On the other hand, Ally Invest's flat fee per trade is simple to understand, and its low minimum deposit requirement is great for people who want to start small, but fund investors may not like that it charges a transaction fee of some sort on every single fund and ETF.

The best broker for you really depends on how you plan to manage your investments. To be clear, The Motley Fool does not endorse any particular brokerage, but we can help you find one that's a good fit for you. Visit Fool.com's IRA Center to compare several brokers all on one page, and see if you qualify for any special offers for opening a new account.