Best Online Brokers, 2012

The discount brokerage industry has come a long way since Charles Schwab launched his business in 1975. Today, many online discounters look more like the full-service brokerages they used to pooh-pooh. On top of the menagerie of investments available, you can go to some discount brokers for a credit card, a mortgage and other banking needs. More important, you can get nearly all the research information once available only from full-service brokers. Some discounters will even provide investment guidance.

SEE ALSO: Our Slide Show of the 2012 Online Broker Rankings

As they pile on the extra services and features, it’s getting harder to assess online brokers. But that didn’t deter us. This year, we reviewed ten firms. The list includes six large, well-known brokers: E*Trade, Fidelity, Merrill Edge, Schwab, Scottrade and TD Ameritrade. Combined, they hold nearly $4 trillion in client accounts. The other four—Firstrade, Just2Trade, ShareBuilder and TradeStation—are up-and-comers that to some degree target niche audiences.

How We Ranked Them

We analyzed each firm in six broad areas. First, the obvious: fees and commissions, range of investment options, research and tools that are accessible to all clients, and banking services. With slick Web sites and tablet and phone applications becoming standard, we also measured the so-called user experience—the ease of navigation and functionality of each Web site and app. Finally, we put the firms through a customer-service test to vet their representatives’ responses over the phone, through e-mail and via online chat.


No firm aced every category. That meant the final outcome depended to a large extent on how much we weighted the categories. We gave the greatest emphasis (25%) to fees and commissions—at the end of the day, cost is what many investors care about most. Investment choices and user experience got the next nod in order of importance (20% each), with research and tools (15%) and customer service (15%) close behind. Banking services (5%) played the smallest role in the final ranking. It can be convenient to have your money in one place, but it’s less important than, say, being able to buy and sell exchange-traded funds without commissions.

In a mild upset, E*Trade carried the day in this year’s rankings. Fidelity, which came in first in our February 2011 rankings, wasn’t far behind. Scottrade and TD Ameritrade came in third and fourth, respectively. E*Trade isn’t the lowest-cost firm, but its high scores in investment choices, user experience, and research and tools propelled it to the top of the list.

Fees and Commissions

Unless you’re a hyperactive trader, what you pay to buy and sell stocks shouldn’t be an overriding concern nowadays. Among the brokers we surveyed, Just2Trade charges only $2.50 a transaction; on the higher end, E*Trade and TD Ameritrade charge $9.99. Make 20 trades a year and E*Trade and TD will charge you $150 more than Just2Trade.

But you do need to keep an eye out for other fees. For example, Just2Trade charges $50 to move your IRA to another firm. Fidelity hits customers with a whopping $75 and Schwab a buck-more-onerous $76 to buy shares in a mutual fund that is not included in the firms' no-transaction-fee programs.

We tallied the typical fees and commissions an investor might incur at each firm, from charges for an outgoing wire transfer to those for maintaining an IRA or trading options. Firms lost ground in the standings if, for instance, the fee to execute a trade over the phone was higher than to make a trade online. They won extra points if they didn’t charge to buy Treasuries online.

Scottrade and Fidelity took the prize. Both firms charge an annoying fee here and there—Fidelity demands $50 to close a retirement account, and Scottrade levies a $2 monthly fee to get a paper statement in the mail. But neither firm charges for having an IRA or for transferring a portion of an IRA to another firm. By contrast, TradeStation and Just2Trade each charge $35 a year merely to keep your IRA.

Merrill Edge punishes customers for moving money out: It will cost you $30 to wire money and $75 to move an IRA account. Although Merrill charges just $6.95 for stock trades, it costs $39.95 to buy funds outside of its no-transaction-fee network (the group average was $32) and $44.95 to execute a trade with a phone representative (group average, $27).

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