You should be investing your money. Investing is essential to earn a reasonable rate of return and to have money to accomplish goals such as paying for your children's college or funding retirement

While investing is important, it can seem complicated. The good news is, there are plenty of great discount brokers you can choose from that provide opportunities to buy and sell investments with low fees and affordable commission. 

This complete guide to choosing an online brokerage will help you learn everything you need to know so you can find a broker that works well for your situation and provides you the ability to make smart investments for your future. 

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Online discount brokers vs. full-service brokers

First things first: Decide if a discount online broker is actually what you want or if you'd prefer a full-service broker.

A full-service broker may provide online access to accounts but goes far beyond just offering a platform to invest. Full-service brokerage firms offer retirement and financial planning services as well as investment advice. In many cases, you can take a totally hands-off approach and your broker can invest your money for you and just send monthly statements showing how your investments are performing.

While this may sound good, there are big downsides. The fees and commissions are usually pretty high when working with a full-service broker, and not all brokers are good ones. You might get bad advice or end up with a broker that's more interested in earning commissions from making trades in your account than helping you to earn a good rate of return.

Since fees have a huge impact on investment performance, discount brokers are often a better choice -- especially in light of the fact that there are many easy and affordable investment options including mutual funds, bonds, and ETFs you can invest in with minimal experience. 

Discount brokers often have local branches to visit for logistical help with setting up an account or moving money. However, to benefit from low commissions and fees, you'll need to buy and sell assets online yourself. You won't get the type of personalized investment advice full-service brokers provide -- but good discount brokers offer helpful online platforms that feature educational material, including buy/sell/hold recommendations from analysts. 

Is your account safe with the brokerage? 

To make sure your money is protected, it's essential any brokerage you invest with complies with financial industry regulations and has appropriate insurance in case of broker bankruptcy. You should consider brokers only if they:

  • Are members of the Financial Industry Regulatory Authority (FINRA). You can do a broker check by FINRA to make sure your brokerage is a member. FINRA is an independent regulator of securities firms that issues licenses to brokerages and establishes rules governing broker conduct. 
  • Are a member of the Securities Investor Protection Corporation (SIPC). You can find a list of member brokers on the SIPC website. SIPC is a nonprofit corporation that protects investors if their brokerage is forced into bankruptcy by providing up to $500,000 in insurance coverage for assets held at the brokerage. 
  • Offer FDIC insured accounts: Money in savings accounts, money market accounts, and certificates of deposit held at the brokerage should be fully backed by the Federal Deposit Insurance Corporation, which insures bank deposits of up to $250,000. Use FDIC's Bank Find to see if your brokerage is covered. 

You'll also want to look into what additional protection, if any, the brokerage provides in case of brokerage failure. For example, brokers that adhere to the Customer Protection Rule are required to maintain minimum cash reserves equal to net cash owed to customers. If your broker adheres to this rule, you'll have more protection if your asset values exceed amounts insured by SIPC. 

How does the broker protect your account?

Just as it's important to ensure you're protected if something goes wrong with the broker, you also need to determine if the broker provides protection if something goes wrong with your account. Brokers don't insure against investment losses, but they should have steps in place to help prevent fraud.  

Some of the key things to look at include:

  • The broker's policy if your account is hacked: Are you held responsible if someone accesses your account without authorization, or does the brokerage reimburse you for losses? 
  • The broker's privacy policy: Is your information sold to third parties? What information will the broker provide about your account to outsiders?
  • The broker's security protocols: The broker should provide strong encryption. Emails should be secure, and firewalls should be used to protect customer data. Many brokers also conduct 24/7 system surveillance and use two-factor authentication, which means more than a username and password is needed to sign in.

You don't want your assets at risk due to a brokerage with shoddy data protection practices or inadequate fraud protection policies. 

Is there a minimum deposit required to invest?

Depending how much money you'll be transferring in, ensure you can meet account minimums. Many discount online brokers have low or no minimum requirements, but some require you maintain a certain account balance. Confirm this before you sign up.

Be aware minimums may be different for different types of investment accounts. For example, there may be no minimum balance for an IRA but a minimum balance required for a taxable account or vice versa. 

Does the brokerage offer the type of account you want?

There are lots of different kinds of investment accounts you could open, including taxable accounts; health savings accounts that allow you to invest with pre-tax dollars to cover healthcare costs; 529 accounts to invest with pre-tax funds for college; and tax-advantaged retirement accounts including traditional IRAs, Roth IRAs, Simple IRAs, SEP-IRAs, and Solo 401(k)s.  

Determine which account type is right for you and make sure the brokerage offers it. Most brokerages offer standard account types, but there could be a fee for certain account types such as a Solo 401(k). 

If you'll be opening a custodial account, which is an account set up for a beneficiary and managed by a custodian, ensure the brokerage allows this. 

Are there incentives or bonuses for opening an account?

Brokers want to earn your business, so they'll often provide special incentives to open accounts that meet minimum balance requirements. For example, you might get a $500 bonus for opening an account with a balance of at least $20,000. 

Choosing a brokerage is a long-term commitment since it can be time consuming and cost money to switch brokerages. It's unwise to make your decision based on incentives alone. However, if you're choosing between two similar brokerages, incentives could help you make up your mind. 

How does the process of depositing funds work?

Most brokerages allow you to use checks and bank transfers, but make sure your brokerage does -- especially if you'll be making regular investments. Also, find out how long it takes for deposits to settle and whether you'll be charged a fee for any methods of depositing funds, such as wire transfers. 

If you intend to automate investments and have money directly deposited into an investment account on a routine basis, find out if the broker can set this up for you. Automating investments is one of the best ways to ensure you're contributing enough to your savings. 

If you plan to move over investments from another brokerage, make sure the brokerage allows a broker-to-broker transfer so you don't have to sell securities. 

What are the commissions and fees?

Some brokers charge fees for basic account services, such as opening accounts, account maintenance fees, and fees to access advanced trading platforms. Others don't charge fees or waive fees if your account balance exceeds certain limits. 

Commissions differ from fees and are charged when you buy and sell assets. If you're interested in active trading and will be buying and selling assets regularly, it's especially important to determine what commission you'll pay. However, even occasional investors need to make sure commissions are reasonable or it will be harder to make a profit. If you'll be doing dollar-cost averaging, it's also important to keep commissions low. 

Brokerages often charge different commissions for the purchase or sale of different asset types. You may pay a different commission to trade stocks or ETFs versus trading options. Your account balance may also impact commissions. Some brokerages charge a lower commission or waive commission entirely if you have a high balance in your account. 

Are there commission-free investments available?

Some brokerage firms offer the opportunity to invest in certain assets without paying a commission. For example, it's common for brokerage firms to offer certain ETFs or mutual funds commission free.

If you'll primarily be buying these assets and can find a broker that doesn't charge any commission, you'll be better off. 

Can you earn free trades?

Many brokers also offer the opportunity to earn commission-free trades if you meet certain requirements. You might become eligible for commission-free trades if your account balance is high enough, if you have other financial products such as credit cards with the same financial institution, or if you do a certain number of trades each month.

If you'll be buying and selling assets regularly and you have the opportunity to use a brokerage where you can earn commission-free trades, you'll save money and effectively earn a better return since you won't lose out on the price of commission with every trade you make. 

What types of investments can you make?

There are many different kinds of assets you may want to invest in, so make sure your brokerage offers access to investments you're interested in. Find out if the broker offers you the ability to trade:

You may not need all of these different investment options. But, if you're a more advanced investor, make sure the brokerage you're choosing gives you the opportunity to invest in a diverse array of financial products.  

Can you get a margin account?

Margin accounts allow you to borrow money to buy securities. You'll need to qualify for a margin account, and securities you're invested in will be used as collateral. Interest is charged on what you borrow.

Find out if the broker will offer you a margin account, and on what terms. Margin accounts are sometimes required for trading options, so you may want to ensure you're eligible even if you don't intend to borrow. 

How is the broker's online and mobile platform?

Since you'll be managing your account and handling trades online, pay attention to how the online and mobile platforms work. Some of the key features to look for include:

  • Real-time quotes: Look for a brokerage that provides real-time stock quotes so you aren't making trading decisions based on prices that are delayed. 
  • Streaming quotes: Do you have to refresh your screen to get up-to-date quotes, or can you choose streaming to always see updated pricing information on your screen?
  • Customized watch lists: Can you set up a customized watch list to track investments you're interested in but not invested in?
  • Customizable interfaces: Can you select how you want information displayed about your accounts? 
  • Easy trading process: Is it quick and easy to buy and sell assets both online and on the mobile platform?

Pay attention to how well you can navigate the mobile and online platforms. Look for a brokerage that offers an intuitive platform so information and tools you need are easily findable. 

How does the order process work?

Buying and selling assets is the most important thing you'll do with a brokerage, so make sure the process works well. Pay attention to:

  • Different types of orders: Can you place market orders, market-on-close orders, limit orders, stop limit orders, stop orders, and trailing stop orders?  What about conditional orders? Can you specify that an order is all or none?
  • Order timing: Can you specify whether your order will be good only for the trading day or good until canceled? Do you have the option to place immediate cancel or fill-or-kill orders?
  • Extended hours trading: Some brokerages allow pre-market trading or after-hours trading, but not all do. There may be an additional fee for extended hours trading.
  • Automated investing: Do you have the option to use customized rules to execute automated trades?

Many beginning investors don't need all these options. You may just want to place a market order to buy stocks at the current market price or a limit order to buy stocks at a price you specify. But, if you're a more advanced trader, make sure the brokerage gives you control you want. 

Does the broker provide education and information?

The types of information you'll want from your broker vary depending on the type of investor you are.

If you're a beginning investor, it may be more important to have access to a robust educational library that teaches investing basics. If you're a more knowledgeable investor, you'll probably be more interested in the charting features the brokerage offers. 

Whether you're a beginning or advanced investor, however, look at:

  • Whether the broker makes it easy to screen investments based on specific parameters
  • Whether the broker offers updated financial news and where this information comes from 
  • How effectively you can find the information you're looking for on the broker's online platform
  • Whether there's an extra fee for pro tools and if such tools are available
  • Whether the brokerage allows you to save parameters on customized charts you create
  • Whether the broker provides data on investments, including access to company financial statements and earnings reports

The more tools the brokerage offers, the more empowered you can become as an investor so you can make better, more informed choices. 

Does the broker provide good customer service?

You can check reviews of the broker from current customers to find out if the brokerage gets high marks for how it treats customers. You should also review different methods of contacting the broker. Can you get phone support or support via online chat? Is there a local branch you can go to, and is there a fee for help?

Make sure you can access a person if you need assistance with your account and that there's someone to answer questions that arise when using the trading platform. 

Is there a fee to close the account?

Ideally, you'll pick the perfect brokerage and have a great long-term relationship with your discount broker. But, if you end up unhappy with the platform and want to move your money, you may have to pay a fee. Find out what it would cost you to leave if you're unhappy, especially if you're choosing a broker for the first time and aren't sure what you're looking for.

Get started investing today

While it may seem overwhelming to pick a broker, there are many great options available for discount online brokers, and most investors will be happy with a variety of different brokers. Just be sure to look for a broker that offers low fees, a wide variety of investment options, and the type of account you want and you should be good to go.