Online brokerage firms have had a hard time living down the tech-stock bubble of the late 1990s and the overblown expectations they seemed to encourage. A memorable TV ad of that era featured a fictitious tow-truck driver whose stock gambles bought him his own private island.
But even if you are not a driven stock trader, now might be a good time to consider opening an online brokerage account. Competition among the surviving firms has led many of them to reduce their fees and commissions considerably and add a range of other low-cost financial services.
Rating the brokers
The Consumer Reports Money Lab recently evaluated 19 online brokers that are accessible to investors using a standard Web browser, such as Microsoft's Internet Explorer or Mozilla's Firefox. The lab rated brokers on the cost and scope of their online trading services. Eight of the 19 offered stock trades for less than $10, and another six dropped the commission below $10 if consumers met their trading-activity or account-size requirements. Several charged a flat $5.
More than half of those 19 brokers offered at least 1,000 mutual funds that consumers could buy or sell without a transaction fee. The lab's evaluation of brokers' mutual-fund programs included the number of no-transaction-fee (NTF) funds available, banking and asset-management services, free research and education tools and customer support.
The top five online brokers scored highest based on the best combination of trading practices, investment offerings, research and other services. Reflecting data that was current as of Feb. 28, Firstrade Securities (www.firstrade.com) rated highest overall, receiving excellent marks for both its trading and mutual-fund programs.
Other brokers that received top scores for trading included TradeKing (www.tradeking.com) and Scottrade (www.scottrade.com). However, neither was strong in mutual funds, and TradeKing had no NTF funds to offer.
Major online brokers like these also are introducing other services to appeal largely to the average investor. The growing menu includes free stock research, no-fee tax-advantaged retirement and education accounts, free checking, ATM access, automatic bill paying and credit cards with low interest rates.
Tradition or technology?
If you need a lot of hand-holding in managing your finances, you'll probably do better with a traditional full-service broker. But if you are the kind of investor who makes two or three stock trades a month (at most) and adds steadily to your core mutual-fund holdings, consider an online broker.
The complete Consumer Reports Money Lab ratings for all 19 online brokers can be found in the May issue of the Consumer Reports Money Adviser newsletter, or online at www.consumerreports.org.