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OptionsHouse vs. Vanguard: Comparing IRA Accounts

By Jordan Wathen - Mar 10, 2017 at 12:03PM

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Here's how OptionsHouse and Vanguard compare for individual retirement accounts.

If you're not making use of an IRA, you're potentially paying thousands of dollars more in taxes than you need to. Worse yet, you might not be saving enough for retirement, either.

Getting started with an IRA is easy. The hard part is finding a good broker to open an IRA -- a broker that offers the features, functionality, and investment choices that fit your personal goals. Let's take a look at how two popular online discount brokers, OptionsHouse and Vanguard, compare for IRA accounts.

Commission prices per trade

When online investing became a reality, a "good deal" was paying as much as $40.00 per transaction just to buy a few shares of stock. Today, prices are much lower, as both Vanguard and OptionsHouse bring trading costs down to below $10 for the most common types of trades. 

Brokerage

Stocks and ETFs

Stock Options

Mutual Funds

OptionsHouse

$4.95 per trade 

$4.95 + $0.50 per contract

$20.00 per purchase

Vanguard

$7.00 per trade

$20.00 + $1.00 per contract

$35.00 per purchase

Data sources: Company websites.

Investors can qualify for rates that are lower than the standard published prices.

For example, Vanguard offers lower commissions to clients who keep more money invested in Vanguard's own mutual funds and ETFs, with the highest tier receiving 100 free stock trades per year. But you don't have to be wealthy to get a good deal. In fact, many brokers have special offers for IRAs that reward new clients with commission-free trades and cash bonuses when they sign up for an account.

Mutual funds, ETFs, and commission-free choices

OptionsHouse and Vanguard differ in that OptionsHouse offers more funds, but Vanguard offers more funds that you can buy or sell without paying a transaction fee.

Brokerage

Total Mutual Funds

No-Load, No-Transaction-Fee Funds (NTF)

Commission-Free ETFs

OptionsHouse

More than 12,100

None

None

Vanguard

More than 7,500

More than 1,300

70 (Vanguard ETFs)

Data sources: Barron's , company websites, and representatives.

Fund investors should arguably be more selective when picking a brokerage for the IRA because mutual fund commissions tend to be higher than stock, ETF, and options commissions. Investors who shop wisely can frequently purchase their favorite funds commission-free and effectively pay nothing in brokerage fees to manage their IRA. 

Minimum deposit requirement for IRAs

Minimimum deposit requirements can get in the way of new investors who want to start small. The good news is that neither Vanguard nor OptionsHouse have minimum deposit requirements just for opening an account. However, some mutual funds have their own minimum requirements to make an investment. For example, most of Vanguard's funds require a minimum deposit of $3,000, but its popular target-date funds require just $1,000 to get started.

Of course, if you plan to invest in stocks or ETFs, you just need enough to buy one share to make your first investment. That said, be on the lookout for perks based on your initial deposit. Some brokers reward investors for depositing more than the minimum.

Man filling out an application form at his desk.

Image source: Getty Images.

Investing in foreign stocks and ADRs

Want to take your portfolio overseas? Depending on how you plan to do it, you may need to use a different broker.

Investors who simply want to invest in foreign funds or ETFs shouldn't be limited by the broker they choose. There are plenty of mutual funds and ETFs that only hold foreign stocks, and you can buy many of these funds through American brokerages.

However, if you plan to trade individual stocks, you'll need to be more careful about the brokerage you pick. Both OptionsHouse and Vanguard allow their clients to trade American depositary receipts (ADRs), which move up and down like a foreign stock would, but trade on a U.S. exchange. Many large companies like Nestle or Adidas have ADRs that trade domestically or over-the-counter.

If you want to trade on international markets and send your trades to London or Singapore, for example, Vanguard offers that ability, but OptionsHouse does not. Importantly, Vanguard charges a $50.00 fee on top of a commission to send trades to foreign markets, so international trading might not be cost-effective for all investors.

If international market access is important to your trading strategy, keep in mind that only a few brokers offer international trading at all.

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 March 9, 2017.

Brokerage

Apple App Store

Google Play

OptionsHouse

1.6 stars

3.1 stars

Vanguard

2.2 stars

4.2 stars

Data sources: Relevant app stores.

IRA account fees and service charges

Fees are everywhere in the financial industry, but there are two fees that are more common in the industry. The first fee is a maintenance fee, which is a service fee you pay just to have an IRA. The second type of fee is an inactivity fee, which brokers charge customers who do not meet their minimum requirements for trading activity.

OptionsHouse does not have either type of fee. Vanguard IRAs can be charged an annual service fee, but it is completely avoidable. To avoid Vanguard's $20 annual fee, simply keep $10,000 invested in Vanguard's funds, or elect to receive your statements and other documents electronically rather than by snail mail. In short, if you agree to help save Vanguard money on postage and paper, they'll help you save money, too!

OptionsHouse vs. Vanguard for IRAs

The truth is that there isn't a perfect broker for every single type of investor. For example, OptionsHouse has lower standard trading commissions across the board, but fund investors may pay more because it doesn't have any funds you can buy or sell for free. Vanguard offers more than 1,400 funds that are free of transaction fees and commissions, including many of its most popular index funds. That said, its standard commission prices are higher, and investors who do not plan to use Vanguard's funds or ETFs won't benefit from its tiered commission prices.

It really all comes down to how each broker's features and fee schedules fit within the needs of your portfolio. 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.

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