Online investing fees that might surprise you
Online brokers are quick to point out their trade commissions, often right on their home pages 鈥� sometimes in a聽comparison chart that calls out the competition.
But if you聽think commissions聽are the only costs you鈥檒l incur when using聽your聽,聽you鈥檙e聽mistaken. Other fees abound, sometimes in the fine print. Here are four of the most punishing, and what they could cost you:
Inactivity fees
If you trade often or maintain a high balance, you likely won鈥檛 run into these. But if you鈥檙e a casual trader or聽are prone to forgetting your聽accounts 聽鈥� yes,聽聽鈥斅爕ou should check your brokerage鈥檚 policies.聽The worst inactivity fees聽can lower聽your account鈥檚 value by聽up to a couple hundred dollars a year. That could easily wipe out returns on a small balance.
Avoid these costs by staying above activity and account balance minimums or choosing a broker that doesn鈥檛 assess inactivity fees, such as聽听辞谤听.
Potential cost:聽Paying $50 in annual inactivity fees for 10 years could cost you $740, when you factor in the聽loss of investment gains.
Expense ratios
These aren鈥檛 necessarily your broker鈥檚聽fault, unless its聽investment selection is poor or limited. But they鈥檙e expenses you should consider nonetheless.
聽are annual fees tacked on to mutual funds, index funds and exchange-traded funds, or ETFs. They鈥檙e siphoned out of invested money, so聽many investors don鈥檛 think much about them. But choosing聽high-fee investments can make a huge difference in聽your portfolio鈥檚 value when you reach聽retirement.
Unlike some investing聽fees, expense ratios can鈥檛 be avoided. But you can聽minimize them by researching them for each fund you buy. Expense ratios are listed on your broker鈥檚 fund information page or in the fund鈥檚 prospectus, and are expressed as a percentage 鈥� for example, a 0.70% ratio means you鈥檒l pay $7 per year for each $1,000 invested.
Index funds and ETFs聽tend to have lower聽expense ratios than mutual funds. But don鈥檛 assume you鈥檙e getting a good deal without comparing the ratio of the fund you鈥檙e聽considering to the ratio for other, similar funds.聽聽
Potential cost:聽If you invested $10,000 in a fund with a 0.20% expense ratio, you鈥檇 have $9,451 more after 10 years than if you鈥檇 invested it in a fund with a 0.70% ratio.聽
Account closing and transfer fees
Many brokers charge a fee 鈥� usually between $25 and $75 鈥� to close or transfer your account. These fees are聽unlikely to add up quickly, unless you鈥檙e the type to broker-hop.聽But there鈥檚聽at least some incentive to do that, because brokers tend to offer impressive promotions to new customers.
To decide if you should swallow an account transfer fee, do some quick math. Weighing the transfer cost against what you鈥檒l save in commissions and other fees should help you decide聽whether switching is worth the cost. Then consider factors that can鈥檛 be quantified so easily, such as聽聽and investment selection.
Some brokers, including聽, offer to reimburse new customers鈥櫬燼ccount transfer聽fees. And several brokers charge different fees depending on the type of account聽or amount you鈥檙e transferring. Closing an IRA might cost less than closing a taxable brokerage account, and transferring part of your account is typically cheaper than a full transfer. 聽The key, as always, is to know what you鈥檙e paying.
Potential cost:聽$25 to $75
Mutual fund transaction fees and ETF commissions
If these are your investments of choice, find聽a broker that trades聽a lengthy list without commissions or transaction fees 鈥� otherwise, you could pay upwards of $30 to invest in a mutual fund and the broker鈥檚 standard trade commission for an exchange-traded fund. Both will hurt if you regularly invest in the same fund, the way many retirement investors do.
Most full-service brokers have a healthy selection of both no-transaction-fee mutual funds and commission-free ETFs; discount brokers tend to have a small number of options, if any. The rub: As you might expect, discount brokers have lower stock trading commissions.
That鈥檚 why it鈥檚 important to聽聽in a broker. Before picking one, make sure it has聽the investments you want and that you can access them affordably.
Potential cost:聽If you鈥檙e charged a commission to invest聽in an ETF each month, you鈥檒l pay聽between $60 and $120 each year, depending on your聽broker. Mutual fund transaction fees can be as high as $30 or $40. That could add up to $360 or more during聽a year of monthly investments.
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