I'll start off today's column with snippets from a couple of emails we recently received here at good ol' Fool HQ.

I want to let you know that two years ago I set up a custodial account for my stepson with BuyandHold, which I heard about on your program.  I was a student at the time and had very little money, but I invested $50 in Microsoft and gladly paid the $2.99 to purchase the stock... Today I logged on to my account, intending to invest another $500.  What I found was that last summer they started charging $6.99 every month even if you do not make any new transactions. The custodial account I set up now owes them almost $40!


I thought I would offer a comment on BuyandHold. This is a great way to go, provided you are intending to trade each month.  If not, the $6.99 minimum monthly fee will sneak up and get you.  I opened three accounts for my children, and apparently had a brain freeze, because 18 months later I owe over $125 on each account. How is that for low cost fees!?

There's no doubt many of you Drip fans utilize BuyandHold.com or its competitor, ShareBuilder.com. And for very good reason -- these services provide a way to invest in Drip-like fashion in companies that do not offer Dividend Reinvestment Plans (DRPs) or Direct Stock Purchase Plans (DSPs). But, as the emails suggest, you need to stay alert or you could find your build-wealth-slowly plans set back by several months, or even years!

The problem came about when BuyandHold changed its pricing structure to include minimum monthly fees. What should you do now? Are these still good deals? Let's find out, as we reevaluate the two services and list the advantages and disadvantages each.

ShareBuilder (which is a current advertiser with The Motley Fool) offers two basic options. The first allows you to invest as often as you like on a weekly or monthly basis, in as many stocks as you like, for $12 a month. If you're not likely to make more than three purchases each month, however, you'll probably want to opt for the second option -- which is $4 per transaction, period. There's no monthly minimum and no annual fee, so you don't pay if you don't play.

Because there's no minimum, you can start an account with any dollar amount. All you do is specify which stock or index fund you want to purchase and how much you want, in dollars. This allows you to buy partial shares of stock, so you don't have to worry about saving up until you have enough to buy whole shares. Dividends are automatically reinvested at no charge.

For an example, let's say you've decided to invest $100 a month. You want some of that new perfume company, Pepe (Ticker: LEPEW), but it's currently selling at $200 a share. No problem! ShareBuilder pools your money with that of other investors, and makes bulk purchases on a regular schedule. So in this case, your account would show you have a half share of Pepe. If Pepe peters and plummets to $75 the next time you buy, you'll be adding 1.33 shares for your $100, for a total of 1.83 shares.

You can't control the timing of your purchase this way, and therefore you'll pay the price ShareBuilder pays at the time of the transaction. But if you ever want to act quickly, the company offers real-time limit or market orders for $15.95 per trade.

One disadvantage: Anytime you want to sell a stock, it will happen in real time and cost you $15.95.

You can open regular individual, joint, or custodial accounts... or no-annual-fee IRA accounts.

BuyandHold (a former advertiser with us) does things a bit differently. First of all, there's no way of getting around a monthly fee, even if you don't trade. Its unlimited plan is $14.99 a month, and that includes all buys and sells as well as any transactions through its "E-ZVest" plan, which allows you to set up a purchasing schedule ahead of time.

If unlimited is not for you, the basic plan will cost you $6.99 a month for up to two transactions, and $2.99 for each one thereafter. Like ShareBuilder, BuyandHold pools investors' money and makes regular bulk purchases, and dividends are reinvested at no charge. Unlike ShareBuilder, selling will not cost you a premium -- it's counted just like a buy transaction. Real-time trades are $15.

BuyandHold has a $25 annual fee for IRAs, which is waived if you set up a monthly or weekly E-ZVest schedule within 30 days of opening the account.

Still a bargain?
To evaluate whether these services are still good deals, let's consider the Foolish maxim of not allowing your trading cost to exceed 2% of your total transaction. The lowest fee available from ShareBuilder is $4, so that would mean you'd want to invest at least $200 at a time to stay within the limit (2% of $200 = $4). If you can't come up with $200 each month, though, just stash the cash in a savings account until you get there, and then make the transaction.

Because of the monthly minimum at BuyandHold, however, you'll need to make sure you invest at least $350 each month for their lowest-cost basic plan (2% of $350 = $7). This certainly makes it less attractive for many Drip investors. In fact, this stinks for most Drippers. Unless you'll be pumping $4,200 a year into the plan, your costs will exceed the 2% ceiling.

Bottom line: Because of the monthly minimum, I cannot recommend BuyandHold. ShareBuilder is less expensive for everything but sell transactions, and you only have to pay as you go -- and that makes all the difference in the world.

One last note: Since this column was first published, some Fool readers alerted us to the fact that FOLIOfn has just unveiled a new pricing plan that allows $4 buys and sells, with no minimums -- so please check them out also!

Rex Moore is a real drip, but has not yet set up a real Drip account. The Motley Fool is investors writing for investors.