Best Online Brokers for ETF Investing

Brokers, Investing
Best Online Brokers for ETF Investors

Exchange-traded funds (ETFs) offer investors a simple way to build a diversified portfolio on the cheap. Because ETFs trade like individual stocks, many of the features sought by investors in a stock trading account are also relevant to ETF-focused investors. But because ETFs essentially are mini-mutual funds, it’s important to consider other criteria, such as:

  • Selection. Like stocks, the universe of available ETFs numbers in the thousands. But unlike stocks, selection varies by broker. Most carry ETFs from the largest issuers (iShares, SPDR and PowerShares). The bigger brokers (such as Vanguard, Fidelity and Charles Schwab) also offer their own branded ETFs and round out their selection with funds from other companies (even from their competitors).
  • Management costs. ETFs are basically bite-sized mutual funds, so look not just at the number and variety of ETFs a broker offers, but also the cost — specifically ongoing management costs (aka expense ratios) — which can vary from broker to broker, even on the same ETF.
  • Commission-free lineup. An easy way to control trading costs is by picking investments from a broker’s list of commission-free ETFs. (Charles Schwab is a standout with a list of more than 200 funds.) Just be mindful of a broker’s short-term trading policies, especially if you’re an active trader. Selling an ETF bought off of the commission-free list before holding it for a certain period (typically 30 days or less) will trigger a penalty (or activity assessment fee) that can be $20 or more.

Here are NerdWallet’s picks for best online brokers for every kind of ETF investor, whether you’re looking for a broker with the broadest range of ETFs, the lowest account minimum, least expensive commissions or the best platform to help you build and manage an ETF portfolio.

Best overall brokers for ETF investors

These online brokers offer the broadest range of high-quality commission-free ETFs as well as tools to help investors pick the best ones for a well-rounded portfolio.

For their robust lineup of high-quality, low-cost ETFs, as well as tools to help investors assemble a top-notch ETF portfolio, Charles Schwab and Vanguard are NerdWallet’s best overall brokers for ETF investing.

Each broker offers a broad array of commission-free ETFs (more than 200 at Charles Schwab and 55 at Vanguard).

One of the standout features at Charles Schwab is the company’s ETF Portfolio Builder, which helps investors create a diversified ETF portfolio based on risk tolerance. The company’s analysts also produce a quarterly list of prescreened mutual funds and ETFs divided by category, which makes it easy to identify funds to fill in any portfolio gaps.

Low-cost investing powerhouse Vanguard is a standard bearer in the ETF category. Thanks to its bargain-basement expense ratios, the financial firm has become the Costco of ETFs: Almost all of the robo-advisors shop at Vanguard for their ETF inventory. While its selection of commission-free ETFs is just a quarter of Schwab’s inventory, customers reap ongoing savings from Vanguard’s famously low management expenses.

Where Vanguard edges out Schwab is in the required account minimum: It’s $0. You’ll need $1,000 to open an account at Schwab unless you sign up for a $100 monthly minimum auto deposit, in which case the requirement is waived.

Investors who plan on trading outside of the no-commission offerings will benefit from Schwab’s flat $4.95 per-trade commission. At Vanguard, commissions are $7 for the first 25 online trades per year, $20 for subsequent trades.

Best low-cost brokers for ETFs

These brokers offer a large number of commission-free ETFs and require no minimum account balance to start investing.

All you need is enough money in your account to buy a single share to start building your ETF portfolio at these brokers. The Robinhood investing app is the bare-bones choice for commission-free ETF trading. Its no-frills, mobile-only platform offers easy access to more than 5,000 equities and ETFs. (The company does not break out the number of ETFs versus equities offered.)

One important note: When we say no frills, we mean that features such as research and data are not included on the streamlined app, and customer service is available via phone and email only during regular weekday business hours. Also note that the broker supports only individual taxable accounts and not IRAs . But if slashing all fees — annual, inactivity and trading commissions — is your top priority, then Robinhood delivers.

Investors seeking the perks of a full-service broker — a full suite of investing and educational tools as well as support for IRAs and individual accounts — should check out OptionsXpress. The broker, like Robinhood, has a $0 minimum requirement to open an account, charges no annual or inactivity fees, and supports trading via a mobile app. OptionsXpress has three advantages over Robinhood — and they’re biggies: OptionsXpress supports IRAs, provides free access to two full-fledged trading platforms, and offers research, data and educational offerings (also free) to customers.

OptionsXpress doesn’t cover commission costs on every trade like Robinhood, but its lineup of 200-plus commission-free ETFs will get most investors pretty close. The ETFs on the commission-free list will look familiar to those who’ve shopped at Charles Schwab: They are exactly the same. In 2011, Charles Schwab bought OptionsXPress. Investors who stray outside of the commission-free lineup aren’t heavily penalized: Commissions are just $4.95 per trade.

Also worth a mention in the low-cost category are two additional investing apps that have extremely low investing minimums and are aimed at new investors who want to add small amounts of money over time:

  • Stash operates like an ETF matchmaker that makes recommendations based on the usual users’ stuff (risk tolerance and goals) as well as their personal interests and values
  • Acorns operates on the “save your spare change” model; it rounds up purchases on linked credit or debit cards and puts the money into a computer-managed ETF portfolio.

The drawbacks of these apps are that the ETF pickings are slim and — like Robinhood — Stash and Acorns do not support IRAs.

Best online advisors for hands-off ETF investing

These robo-advisors will build a customized portfolio of low-cost ETFs based on your investing goals and risk tolerance. Plus, they’ll keep it balanced and optimized for tax savings.

ETFs are the investment of choice for robo-advisors, which makes these automatic-investing services a one-stop shop for investors who want a customized portfolio built, managed and maintained for them based on their time horizon and appetite for risk. Wealthfront and Betterment — NerdWallet’s top picks overall for best robo-advisors — can ably get the job done for less than it costs to hire an investment manager.

The same rules about keeping fees in check apply to all ETF shoppers, whether you’re looking to hire a robo-advisor or going the DIY route. Expense ratios on ETFs used in Wealthfront portfolios average 0.12%, compared with 0.09% to 0.12% at Betterment.

What you’ll pay in management fees depends on the size of your portfolio. If you have less than $10,000 to invest, Wealthfront is the most cost-effective choice, with no management fee on the first $10,000 and 0.25% on investments exceeding that amount. Betterment has three fee plans ranging from 0.25% to 0.50% per year based on the level of service you want. (See more details about the differences between the two robo-advisors in our Wealthfront vs. Betterment comparison.)

Best online brokers for building and managing an ETF portfolio

These brokers offer robust trading platforms with tools geared toward the active ETF investor. The trade-off: fewer commission-free ETFs than the competition.

TD Ameritrade and E-Trade offer a happy middle ground for investors who don’t want to cede complete control over their investing to a robo-advisor but still want some professional guidance. Both brokers offer tools to help investors assemble a risk-appropriate, balanced portfolio of ETFs. (And for those who aren’t ETF purists, the companies will help you include mutual funds and stocks, too.)

Both brokers offer more than 100 commission-free ETFs, covering a mix of equity funds, bond funds, international funds and commodity funds. Each also provides a professional tour guide of sorts to highlight the top picks. TD Ameritrade’s ETF lineup is curated by investment research company Morningstar, which is highly regarded in the industry for its mutual fund and ETF ratings. E-Trade’s analysts produce a quarterly All-Star List to highlight the top no-load funds and ETFs offered.

E-Trade’s My Virtual Advisor tool offers free asset allocation recommendations for investors of self-directed funds, ETFs and stocks. TD Ameritrade’s prebuilt asset allocation models are a valuable tool to guide investors through the process of assembling a properly balanced portfolio of ETFs, stocks and mutual funds. Its models are nimble enough to accommodate plenty of customization.

Best online brokers for active ETF traders

These brokers offer robust trading platforms with tools geared toward the active ETF investor. The trade-off: fewer commission-free ETFs than the competition.

Time-sensitive data and timely trade execution are essential tools for active ETF traders. Both Fidelity and Interactive Brokers provide the tools to monitor real-time minute price movements, create alerts and watchlists, and have mobile capabilities to trade on the go.

Interactive Brokers’ Trader Workstation has a good reputation among active, advanced investors with its volatility lab, advanced charting, heat maps of sector and stock performance, and paper trading. Its mutual fund replicator helps users identify ETFs that replicate the performance of a selected mutual fund — a great fee-slashing feature.

All Fidelity customers have access to its comprehensive web, mobile and desktop trading platforms. Its ETF snapshot pages include an impressive number of analyst ratings and access to reports. Those who qualify can access the premium Active Trader Pro (with advanced tools) and Wealth-Lab Pro, an advanced strategy testing tool.

Low commissions are another priority for active traders. Interactive Brokers’ stock and ETF commission structure favors frequent, high-volume traders at just $0.005 per share. There are a $1 minimum trade commission and a 0.5% maximum, with exchange and regulatory fees included. Plus, volume discounts are available.

But this comes at a cost: higher account minimums ($10,000 for a standard account) and an extra charge to access premium features. Fidelity offers no volume trading discount, but outside of its Active Trader Pro platform (which is restricted to customers who trade at least 36 times in a rolling 12-month period), its research and data are free and extensive.


Best online brokers for ETFs: summary

Broker
Best
for
Highlights
Commiss-
ions
Promotion
Account minimum
Start investing
Charles Schwab
Chales Schwab
Overall
200+ commission-free ETFs
$4.95
per trade
$100 to $500 cash bonus for deposits of $10,000 or more
$1,000

Vanguard

Vanguard
Overall
Known for low-cost index funds
$2 to $20 per trade depending on account balance
None
$0
Robinhood
Robinhood
Low cost
No-frills,
free trading app for beginners
$0
per trade
None
$0
OptionsXpress
OptionsXpress
Low cost
200+ commission-free ETFs from Schwab
$4.95
per trade
50 commission-free trades with deposit of $5,000 or more
$0
Wealthfront
Wealthfront
Hands-off investing
Offers tax-optimized direct indexing
0.25% of account balance
per year
$10,000 managed free (NerdWallet readers)
$500
Betterment
Betterment
Hands-off investing
Goal-setting features guided asset allocation
0.25%-0.50% of account balance
per year
1 month free management with qualifying deposit
$0
TD Ameritrade
Portfolio
building
100+ commission-free ETFs curated by Morningstar
$6.95
per trade
$100 to $600 cash bonus, depending on account size
$0

E*Trade

E*Trade
Portfolio
building
Quarterly
analyst recommendations
$6.95
per trade; volume discounts
60 days of commission-free trades with deposit of $10,000 or more
$500
Fidelity
Fidelity Investments
Active ETF traders
Research; Active Trader Pro platform
$4.95
per trade
300 commission-free trades with deposit of $50,000 or more
$2,500 ($0 for IRAs)
Interactive Brokers
Active ETF traders
Advanced trading tools; volume discounts
$1 per trade minimum;
volume discounts
None
$10,000 ($5,000 for IRAs)

Dayana Yochim is a staff writer at NerdWallet, a personal finance website: Email: dyochim@nerdwallet.com. Twitter: @DayanaYochim.

Updated April 11, 2017.