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Your Take: How Do You Evaluate Brokers?

Posted By Jim On 01/08/2010 @ 7:35 am In Investing | 34 Comments

Charles Schwab announced today [3] that they would be charging a flat $8.95 per online equity trade regardless of the customer’s account size or the number of shares traded, down from $12.95. Schwab has been marketing itself as the broker of the average Joe, with their “Talk to Chuck” marketing, and moving to $8.95 a trade is certainly going in the right direction.

I’ve always thought of Schwab as a full-service broker along the lines of a TD Ameritrade [4], who charges $9.95 a stock trade, and less of a discount broker, like TradeKing [5] ($4.95) or E*Trade [6] ($12.99). As the lines between services that discount and “full-service” offer gets blurred, the only differences will come down to the commissions. Right?

Right now I use both TradeKing and E*Trade, but am transitioning my holdings from E*Trade to TradeKing. E*Trade was my broker of choice because you could instantly transfer your funds between E*Trade Broker and E*Trade Bank, which had a high yield savings account [7]. With their high yield savings account yielding only 0.50% APY, that competitive advantage has vanished.

Now, my decision comes down to the price of a stock trade. I’m not an active trader but if TradeKing charges me $4.95 a trade and E*Trade charges me $12.99 a trade, that’s $8.04 per trade of savings. The 0.50% APY savings account at E*Trade won’t make up for the difference as you only earn $8.04 of interest (after taxes, assuming 25% tax bracket) on $2,144 of savings. When higher yields await elsewhere, there’s little reason to put savings in E*Trade and “investment” dollars won’t stay in a 0.50% account for very long.

That made me wonder, what stock broker do you use and why?

(Photo: thetruthabout [8])


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[1] Tweet: http://twitter.com/share

[2] Email: mailto:?subject=http://www.bargaineering.com/articles/how-do-you-evaluate-brokers.html

[3] announced today: http://www.businesswire.com/portal/site/schwab/?ndmViewId=news_view&newsId=20100107005881&newsLang=en

[4] TD Ameritrade: http://www.tdameritrade.com/welcome1.html

[5] TradeKing: http://www.bargaineering.com/articles/r/tradeking.php?tag=YTevalBrks

[6] E*Trade: http://www.bargaineering.com/articles/r/etrade-ira.php?tag=YTevalBrks

[7] high yield savings account: http://www.bargaineering.com/articles/high-yield-savings-accounts-rates.html

[8] thetruthabout: http://www.flickr.com/photos/thetruthabout/3020802866/sizes/m/

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