Best Online Brokers for ETF Investing

Brokers, Investing
Best Online Brokers for ETF Investors

Exchange-traded funds (ETFs) have become the “It Investment” among those looking for a simple way to build a diversified portfolio on the cheap.

Like mutual funds, individual ETFs contain a bundle of investments chosen based on certain criteria, be it companies that make up a market index (such as the S&P 500), a particular asset class (bonds, international stocks) or a specific sector (energy, technology). What makes ETFs particularly irresistible is the cost: Expense ratios on these investments tend to be lower than those charged by actively managed mutual funds (a big-time boost to your overall returns). And because ETFs are broken up into bite-sized investment chunks bought and sold like shares of stock, investors can purchase them through a broker for less than the $500-plus minimum entry fee many mutual funds require.

The popularity of ETF investing has inspired online brokers to create ETF-specific pricing and portfolio-building tools for just about everyone, whether you’re looking for the broadest range of ETFs to choose from, cheap trading costs, a low account minimum to get started or a robo-advisor to build an ETF portfolio for you. Here are NerdWallet’s picks for best online brokers for every kind of ETF investor.

Best online 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.

Charles Schwab and TD Ameritrade earn NerdWallet’s top award for best overall brokers for ETF investing. Each broker offers a broad array of commission-free ETFs (more than 200 at Charles Schwab and 100-plus at TD Ameritrade). The standout feature at Charles Schwab is the company’s ETF Portfolio Builder, which helps investors create a diversified ETF portfolio based on risk tolerance. 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.

There’s no minimum account balance requirement to get started at TD Ameritrade. And don’t let Schwab’s $1,000 minimum scare you off; it will waive the requirement on many of its accounts for customers who sign up for a $100 monthly minimum auto deposit.

We’d be remiss if we didn’t mention low-cost investing powerhouse Vanguard in the ETF category. Thanks to its bargain-basement expense ratios, the financial firm has become the industry’s Costco of ETFs: Almost all robo-advisors shop at Vanguard for their ETF lineup. There is no minimum requirement for investors to open a regular brokerage account, and commissions are $7 for the first 25 online trades per year and $20 for subsequent trades, on balances under $50,000. The only reason it doesn’t get the bold-faced treatment in NerdWallet’s best overall ETF broker awards is that it offers just over 50 commission-free ETFs.

Best online brokers for commission-free ETFs, no minimums

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

With these brokers, all you need is enough money in your account to purchase a single share to get started building your ETF portfolio. The Robinhood investing app is the bare-bones choice for free ETF trading. Its no-frills platform offers an easy entree into commission-free investing of more than 5,000 equities and ETFs. (Robinhood does not break out the number of ETFs vs. equities offered.) Note: When we say no-frills, we mean that features like research and data are not included on the streamlined app. Also note that the broker supports only individual taxable accounts and not IRAs.

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. Its lineup of 200-plus commission-free ETFs will look familiar to those who’ve shopped at Schwab: It’s exactly the same. In 2011 Charles Schwab purchased OptionsXpress to boost the established broker’s offerings for active options traders. ETF investors starting out with only small amounts to invest can use this marriage as a workaround to access Schwab’s high-quality commission-free ETF list without having to scrape together enough money to meet its $1,000 minimum to open an account. Investors who stray outside of the list of commission-free ETFs will pay for the privilege, though: OptionsXpress charges $4.95 a trade. But unlike Robinhood account holders, investors have the option of adding a particular ETF to their portfolio, even if they have to pay for the transaction.

Best online advisors for hands-off ETF investing

These robo-advisors will build you 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 hiring an investment manager to do it on your behalf.

The same rules about keeping fees in check apply to all ETF shoppers, whether you’re looking to hire a robo-advisor or are going the DIY route. Expense ratios on ETFs used in Wealthfront portfolios average 0.12% compared with 0.09% to 0.17% at Betterment (a negligible difference). Both advisors charge 0.25%, but Wealthfront manages $10,000 of every account balance free. Betterment also offers access to financial advisors for a higher management fee. (See more details about the differences between the two robo-advisors in our Wealthfront vs. Betterment review.)

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.

Priorities for the buy-and-hold investor are different from those of active traders. The latter requires a fairly robust trading platform with tools to monitor real-time minute price movements, create alerts and watch lists, plus mobile capabilities to trade on-the-go. The trade-off in this category is that investors have a smaller universe of commission-free ETFs to choose from: Interactive Brokers offers roughly 50 and Fidelity has around 85.

Both Interactive Brokers and Fidelity offer sophisticated trading tools. Interactive Brokers’ Trader Workstation is considered one of the industry’s best desktop trading platforms available for advanced investors. (See our full Interactive Brokers review for details.) The company’s stock and ETF commission structure favors frequent, high-volume traders at just $0.005 per share. There’s a $1 minimum trade commission and a 0.5% maximum, and exchange and regulatory fees are included, plus volume discounts are available. The volume pricing discount here may make up for the company’s commission-free shortcomings.

All Fidelity customers have access to the broker’s Web-based strategy testing to save and monitor trading strategies and get buy and sell alerts. Those who qualify can access the premium Active Trader Pro (with advanced tools, like charting with Recognia and Elliott Wave analysis) and Wealth-Lab Pro, an advanced strategy testing tool.

Fidelity does not offer volume discounts to active ETF traders. But its 80-something commission-free ETFs may make up for that. However, an important note to short-term traders: Fidelity ETFs and iShares ETFs purchased commission-free are subject to an activity assessment fee (between $0.01 and $0.03 per $1,000 of principal) if held less than 30 days.


Best online brokers for ETFs: summary

Broker
Best
for
Highlights
Commiss-
ions
Promotion
Account minimum
Start investing
TD Ameritrade
Overall
100+ commission-free ETFs curated by Morningstar
$6.95
per trade
$100 to $600 cash bonus, depending on account size
$0
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
Robinhood
Robinhood
Commission-free ETFs, no minimums
No-frills,
free trading app for beginners
$0
per trade
None
$0
OptionsXpress
OptionsXpress
Commission-free ETFs, no minimums
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
$15,000 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
Up to 6 months free management
$0
Fidelity
Fidelity Investments
Active ETF traders
Sophisticated "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
Sophisticated trading platform; volume discounts
Pricing starts at $1 per trade (volume-tiered)
Lower min. activity and balance limits for clients ≤25
$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 March 3, 2017