Investors Are Throwing Away $1.8 Billion in Unnecessary Fees: Here’s How to Recoup It

We all know that sometimes to save money we need to make sacrifices – but what if you can save money without much sacrifice at all?

The typical investor can do so just by shopping around for the lowest cost brokerage accounts.  A study of brokerage fees released this week by NerdWallet finds that over 17 million investors with accounts at the 3 largest online brokerages (Schwab, TD Ameritrade, and E-trade) could be saving a ton in fees if they just switch to a competitor: $1.8 billion or more, to be specific.

To aid investors looking to save, NerdWallet’s tool allows investors to compare brokers side-by-side to find the best and most affordable fit.

Are investors benefitting from big brand name accounts?

NerdWallet’s study looks at what these brand names are really buying the consumers that use them.  The typical investor with these companies makes between 1 and 2 trades per month, and they typically charge either $7.99 or $9.99 per trade, plus associated costs not always clear upfront.

While one might assume that this extra cost per trade is buying them special treatment – faster trade execution and better customer service, perhaps – NerdWallet’s look at where the money really goes is startling.  Online brokers spend commission and a greater percentage of their earnings overall on advertising and overhead costs – not things that directly benefit your investments.  This chart breaks down their spending by cost, comparing it to the average cost of one trade at each brokerage:

The takeaway?  Most investors, and particularly any active stock traders, would do just as well bringing their business elsewhere to a ‘deep discount broker.’

How Do I Find the Right Broker For Me?

NerdWallet’s new brokerage account comparison tool allows users to do their research before they invest, so they are made aware of all hidden and unpublished fees upfront to avoid unpleasant surprises later on.

Because not all investors need the same things, you can search for the best fit for your needs depending on what matters the most to you:

  • Price
  • Research, Service and Selection
  • Data and Analysis Tools

For many, price is what matters most, so you can sort accordingly to find brokerages charging around only $1 per trade.  For instance, if you decided to use a deep-discount broker like this, your total fees per year would equal $12 if you make a trade per month.  That’s over $95 a year in savings, for an identical service.

Using the tool allows investors to identify the right brokerage account for their needs, usually at a fraction of the price.  One trade might not seem like a lot, but we did the math and it really adds up.  The best part: quality isn’t sacrificed when you make the switch.

Written by Susan Lyon

Susan Lyon is a financial analyst with NerdWallet.

3 Responses to Investors Are Throwing Away $1.8 Billion in Unnecessary Fees: Here’s How to Recoup It

  1. Generally I would say most traders would be well served by either TD Ameritrade or Interactive Brokers. TDA is expensive but they’re nice to deal with and do a good job of hand holding. If you don’t trade much they’re great. IB offers first class features and very low costs, but they’re geared towards pros who don’t need or want their hands held.

  2. Certainly fees are important but there also needs to be some consideration regarding the types of accounts needed, the depth of investment choices such as mutual funds and many other factors. In fact transaction costs should be a minor consideration for most investors in my opinion unless you are a frequent trader.

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