I started managing my own money in a brokerage account almost 10 years ago. I had a little bit of money saved, and I didn’t want to lock it up in a 401(k) until I was 60. I’m glad I did. While many Americans are content to wait until a traditional retirement age to tap investment returns, it doesn’t have to take that long to build up a small fortune with a good strategy and an early start.
But, which online brokers are best for beginners just learning the ropes? I closely analyzed almost a dozen of the most popular brokerage platforms available with an eye towards ease of use, educational tools, and low costs. Some platforms were too sophisticated for newbies and others were just too inaccessible. But three are going to be great starting points for any beginner.
If you are native to mobile and are happy to get educational materials elsewhere, there really is no better platform than Robinhood. But if you want a little more hand-holding and hope to grow into more sophisticated strategies like options, either Fidelity with its best-in-class tools, or Scottrade with its personal-level of guidance, are also going to be great choices for any beginner trader.
The Simple Dollar’s Top Picks for the Best Online Brokers for Beginners
- Best For Learning How to Trade: Scottrade
- Lowest Fees: Robinhood
- Best Broker Tools for Self-Starters: Fidelity
Finding the Best Online Broker for You
The first thing to know about online brokers: They let you put money in and take it right back out as you need it, unlike tax-deferred retirement accounts that have steep penalties if you cash out early.
Another important thing to know is that online brokers provide a huge universe of investments, unlike a 401(k), which may only provide a total of 10 investment options. That can be great if you know what you’re doing, but can be confusing or intimidating if you don’t.
And that leads us to my last point: online brokers certainly aren’t charities, and some will use complexity or hyped-up marketing to justify steep fees for their services. Not only do these charges add up, but they may ultimately lead you to make the wrong investments – doing lasting harm to your bank account as a result.
In short, the blessing and the curse of online brokers is flexibility. And your goal as a beginner is to take advantage of the investments not available to you elsewhere without racking up fees or making complex trades that erase your hard-earned savings.
Here’s what to look for in an online broker if you’re just getting started:
- More Than Just Funds: Lots of brokers tout benefits like $0 transactions for certain mutual funds and ETFs. But if you’re just buying and holding index funds for decades, why not just stick with a 401(k)?
- Easy to Learn: Beyond making it easy to book your first trade, a good broker has plenty of resources to help you use sophisticated tools and strategies over time.
- No Pressure: Some brokers cater to very active traders, demanding a high minimum balance or pushing you towards day trading from the start. Beginners should not be hyperactive, and need to learn the ropes first. Look for a cost structure and platform that won’t pressure you to trade too much.
Admittedly, even with a great online broker it can be intimidating or challenging to invest at times. But unless you have a million dollar trust fund waiting, you have to figure this out.
The risks are real, yes, but so are the rewards. And I’m not just talking about investment returns, but serious finance skills you can use across other areas of your life.
Consider my very first trade about a decade ago: 25 shares of a Russell 2000 index fund with the ticker symbol IWM – a position worth roughly $2,000. I churned in and out of the position as it crashed during the financial crisis of 2008, ultimately locking in a $1,000 loss by selling at a bad time and racking up the trading fees.
Sure, I’d like the $1,000 back… but I still think it was money well-spent in the long run of my financial education. Since then, I’ve been more patient. I’ve been more scrupulous about my fees, and I have a much better understanding of how the market works. Just as importantly, I also realized that my broker wasn’t right for me because it was too aggressive with fees and not helpful enough with its tools – so I switched, and haven’t looked back.
A good online broker like the three listed below can teach you some of the lessons I learned the hard way, and can help keep you from making some of the same mistakes.
The Best Online Brokers for Beginners
Best for Learning How to Trade
Scottrade is an online broker that caters to investors of all types. But one thing that you’re sure to get, regardless of your experience, is a superior level of customer service. It has regularly won various customer service awards, and provides both virtual and real-world support to ensure you aren’t in over your head.
There’s also a robust suite of investment research and tools, as well as an archive of helpful articles on topics ranging from investment taxes to short selling. No matter what your strategy, Scottrade and its staff will help you live up to your full potential.
I should also mention that at the end of 2016, TD Ameritrade moved forward with acquiring Scottrade. That deal is expected to wrap up by the fall of 2017 and “an anticipated clearing conversion to TD Ameritrade systems in 2018,” according to its press release. It’s going to be hard to beat these two powerhouses joining forces.
Why It’s Great – Real People!
For a beginner investor, there is no substitute for sitting down with someone when you need help. So while Scottrade isn’t as cheap as some other platforms, it also spends a lot more on customer support than the competition.
That includes 1,500 investment consultants at roughly 500 branches nationwide, and periodic seminars and conferences to help beginner investors. A lot of other brokers are online-only, and don’t even pretend to have a real-world operation to help their customers.
There’s no fee associated with making a branch appointment, and representatives will gladly show you how to use online educational tools and calculators. There’s also no shortage of ways to get help away from the brick-and-mortar offices, including online chat tools and a customer service hotline.
Another Perk – Growing With You
One thing I have learned since I started investing is that as my needs change. I often outgrow my old trading platform. It’s a hassle to close the old broker and connect my bank account to a new one, and it always takes longer than you’d expect.
The good news for beginners starting out with Scottrade is that the platform offers a complete line of trading and investing services, including retirement accounts like IRAs, as well as the ability to aggressively day-trade stocks and options, if you choose.
You may never wind up doing anything other than a boring buy-and-hold strategy, but it’s nice to know that Scottrade can easily scale with you as you evolve as an investor, with no hassle or added cost.
Robinhood, my top pick for lowest fees, may have the most intuitively easy-to-use tools of the bunch; however, there’s no substitute for actual people showing you how to get the most out of the platform, and helping you evolve as an investor, using what’s already at your disposal with no additional cost.
The Downside – Higher Fees
Of course, this generous offering of tools and services is hard to support on a low-cost structure. While Scottrade does offer plenty of promotional offers, including 60 days of free transactions when you sign up, the base rate is $7 per stock or ETF trade. That can add up in a hurry if you wind up being very active in your portfolio.
It’s also worth noting that if you’re just a small-time investor, the fees will take a big chunk out of your nest egg. Consider that if you invest $2,500 in five different stocks with purchases of $500 each, you’ve “lost” 1.4% of your entire portfolio via that $35 in fees; and you’ll lose another $35 when you place orders to sell.
Many beginner investors aren’t eager to make 20 trades a month, though, and most folks don’t bother opening a brokerage account if they only have a few hundred bucks to spend. But the costs are worth noting, and can be viewed in detail here.
Robinhood is truly an online broker for the 21st century. As its name implies, it’s all about making the fat cat world of Wall Street accessible to the little guy or gal – primarily through its innovative approach to fees. Or, more precisely, the lack of trading fees altogether. There are none.
Robinhood’s primary goal is catering to beginning investors by making its platform accessible and its fees low – and it does that very successfully.
Why It’s Great – No Fees!
As I said earlier, no broker is a charity. Robinhood indeed makes money off its users. But the way it makes money is precisely what makes it perfect for beginning investors. In its own words, Robinhood makes money by “collecting interest from customers who choose to upgrade to a margin account” and by “accruing interest from customers’ uninvested cash balances.”
Margin accounts – that is, investing with borrowed money – can be a risky scenario and is not for beginners. And leaving idle cash just sitting around in a brokerage account defeats the purpose; if you weren’t going to trade at all and wanted a zero percent return, you could have parked it in your checking account. (You can get a full list of their fees here, if you’re curious).
If you’re simply getting started with a broker and want to learn in real-time how to trade with real money, Robinhood lets you do that at no additional cost. Not only will you save on fees, which typically run $7 a trade at most online brokers, like my other top pick, Scottrade, but you will earn valuable real-world experience through actual trading.
Another Perk – A Mobile Responsive Platform
Robinhood has upended the traditional broker experience by doing away with complex trading software and tools that most competitors offer. Instead, it’s all about mobile.
You can sign up in just a few minutes on your smartphone, and make trades in seconds with just a few taps. For the new generation of investors who are native to mobile interfaces, it is refreshing to see a broker that offers this.
When you’re getting started, the tools matter a lot. And the easy-to-use app takes a lot of stress out of the equation for beginners, particularly those who prefer a mobile platform.
The Downside – Light on Investor Education
The downside of the mobile experience on Robinhood is, of course, an inability to provide as deep an experience as you get on larger computer screens, or in traditional browsers. This may make the very first trades you make a bit intimidating, particularly if you don’t have a clear idea just what you’re investing in and why.
That is admittedly a knock against Robinhood worth noting, but it’s not a fatal flaw. There’s a wealth of other great investor education sites out there that can teach you the basics. And to be honest, as you learn the ropes as an investor, you will eventually grow beyond native tools provided by your broker and find other apps, websites, and research that fits with your own trading style.
Best Broker Tools for Self-Starters
When I first started saving money and investing seriously, I had a Fidelity account to manage an IRA. And, honestly, part of the reason I have learned so much about markets and trading is because of the customizable research tools and screening software Fidelity offers its account holders.
If you’re a do-it-yourselfer who really enjoys data and analysis, then Fidelity’s tools are perfect for you. You can learn a ton without even trading, simply by getting your hands dirty with the research tools and learning about all the different parts of the market, and how they fit together.
Why It’s Great – The Tools
I will resist the urge to clutter up this page with a million screenshots, or examples of research, and simply assert that if there’s a way to slice and dice the market, Fidelity has thought about it. And best of all, they have provided an easy way for you to explore your options with a slick and intuitive design, complete with color-coded rankings and charts that call-out what’s important.
You can sort stocks by size, performance, and even “fundamentals,” like their sales growth or profit growth. You can sort ETFs by the sectors they focus on, their expenses, and even whether Fidelity offers a commission-free version to save you money on transactions.
Wall Street can be a confusing place when you first jump in. But if you’re intellectually curious, the on-board research tools and screening methods that come with a Fidelity brokerage account are great ways to explore the market and find out what strategy is right for you.
Another Perk – Tool Demos, Videos, and Webinars
Want to explore the idea of backtesting, but need a little help? Well, in Fidelity’s Learning Center there are videos dedicated to the topic – including not just the concept, but how to use Fidelity’s website to do some actual back testing on your investment ideas.
This is a powerful way to learn real-world investing techniques and put them into practice, instead of just reading about the topic elsewhere, then scratching your head when it comes time to actually do the work in your own brokerage account.
Want to know more about ETFs and how the costs are structured? There’s a webinar for that, too. Curious about 529 plans to save for your kid’s college education? There’s tons of articles on the topic.
From retirement to personal finance tips to next-level trading strategies, there’s a wealth of information in Fidelity’s learning center. Best of all, it’s easy to navigate, thanks to the ability to sort by topics.
The Downside – Information Overload
As I said earlier, I was a customer of Fidelity for a long time, and I loved the platform. But I geek out on this stuff and love to test and research ideas for hours before making an actual trade, so those of you with a short attention span may simply be frustrated by all of the tools and information.
If you’re opening an online broker account simply to make a few trades and then buy and hold for years, or even decades at a time, then you probably just want a platform that keeps your fees low and your experience simple.
But if you really want to put in the work yourself to move beyond the kiddie pool and swim with the big fish on Wall Street, Fidelity is the platform for you.
The Bottom Line
All these brokerage platforms are serious about making investing accessible for beginners through their interfaces and low cost structures. If you want personal guidance from professionals and an easy-to-use trading platform, go with Scottrade. If you’re a self-starter interested in the lowest fees possible, either Robinhood, with it’s no-fee structure, or Fidelity, with its reasonable pricing and best-in-class broker tools, are going to be your best bet.