FOOL SCHOOL
Comparing Brokers By Cost

June 26, 2002

To make the process of comparing costs as easy as possible we devised this handy page that allows you to compare brokers. But first, ask yourself these questions:

1. Are lower dealing charges very important to you?

In many people's minds, this is the most important question, and one to which they will always answer "YES!" After all, you wouldn't have read this far if you weren't interested in a Foolish means of picking a stockbroker without paying too much in charges.

This question goes a little deeper, though. Really, it's "Do you want the lowest dealing charges when compared to all the other online brokers at all trade sizes?" What you have to consider here is the actual monetary size of the trades you will be making. Some brokers will impose minimum and maximum dealing charges. Those that don't will probably be cheaper for much smaller deals but more expensive for larger deals. If minimum and maximum isn't important, and you will be trading at high volumes, do you care that you may be paying £6.50 more for a £10,000 trade? Is that unimportant or essential? If you are only trading in very small amounts, then not having a minimum charge could save you £10 on a deal of £500 when compared to a online broker that does impose a minimum charge. You'll need to work out your trade sizes and then check out the comparison table to get a feel for this question.

Don't forget, if you're a smaller investor to start with, there is no reason why you can't open an account with one broker now for smaller trades and, when you have built up a bigger sum, transfer your account to another broker that offers a better deal for larger trades. Just look at the transfer fees and plan ahead.

2. How often will you trade?

You have to estimate how often you are going to trade the course of a year. If you are going to trade often, then you may get better rates by paying a higher annual account fee to a broker in return for lower dealing charges. This may be for you if you are going to trade more than ten times a year. But if the company charges for such a service and you don't meet the minimum number of trades, the fee will be wasted. However, some companies offer a system where your normal annual fee is waived if you trade more than a certain number of times a year. And some even offer lower dealing charges if you deal more than a certain number of times in a set period.

3. Are you willing to pay higher annual charges to get extra facilities?

Most accounts charge a fee based on the number of stocks that you hold, or the value of your holdings. Some charge per quarter, some per half-year, others are annual. Some have minimum and maximum charges. Some charge quite a bit more than others, with the extra usually-- but not always-- going towards providing extra facilities such as free registration as a shareholder. You need to decide if you are willing to pay higher annual charges to get extra facilities.

4. Are low share transfer charges important to you?

At some point you will have to transfer money or shares into your account in order to trade. At other times you will want to transfer money out. You may even want to transfer shares out, either to another broker or to live off for many years to come. After all, if you intend to hold the stock through thick and thin for many years, why pay the annual charges for that holding when you could get the certificate sent directly to you? That might be a more Foolish proposition in the long run.

Transferring money in and out will not normally cost you anything, but transferring shares in and out can. Transfer out, for obvious reasons (the brokers lose custom and make less in annual fees), is normally the direction that incurs a charge. If you are a long-term buy-and-hold Fool, and you really don't want to incur much in charges, then check out the transfer fees for stock certificates. The decision to pay between one and three years in annual charges up front to get a certificate, for example, may be more cost-effective than 10 years' worth of charges. Obviously, this detracts from your ability to trade instantly, as you have to send the certificates back in, but how important this is depends on what kind of investor you are.

More: The Fool's Broker Centre