(Note: This is a not yet published post for LendingTree.)
Are you looking to open a brokerage account in 2022? With so many options available today, it may be overwhelming when deciding where to put your money. Two of the biggest names in the industry, Fidelity and TD Ameritrade, provide you with the opportunity to open new accounts with no minimum investment and offer comprehensive resources to assist you with your goals. However, not all brokerages are created equal, so it’s important to research how they differ. Before comparing and contrasting these two brokerages, it will be helpful to identify why you might want to open a new account in the first place.
Objective
Higher Yield for Your Money
If you were to check your current bank’s savings account rate at the time of this writing, it likely will fall somewhere between 0.30% and 0.50% APY. While this is usually a safe and guaranteed investment, it doesn’t offer much in the way of return and could be costly if inflation rises at a higher rate. Historically, the inflation rate in the United States has averaged over 3% annually going back to 1914. Thus, while your account will grow from that interest, your money does not have as much purchasing power due to inflation.
With a brokerage account, you have the potential to earn a much larger return with exposure to the stock market. Even with a conservative investment portfolio, your money can work for you. For example, if you had $10,000 you wanted to invest and not touch for 10 years, look at how the following rates of return would grow your account:
- Annual Return: 0.50% | Total: $10,512.60
- Annual Return: 4.00% | Total: $14,908.33
- Annual Return: 6.00% | Total: $18,193.97
- Annual Return: 8.00% | Total: $22,196.40
While no results are guaranteed, you can see the significant benefit to market exposure over the long-term. An additional benefit, which is outside the scope of this article, is the tax advantages to holding a stock or fund for longer than 12 months. Any earnings when sold off will be taxed at the capital gains tax rate, which is less than income tax rates.
Maxed Out Retirement Accounts
If you take advantage of the maximum contributions to retirement accounts annually, a brokerage account allows you another opportunity to keep saving and investing in the stock market. For 2022, the maximum combined amount you can contribute to an IRA and Roth IRA is $6,000 (or $7,000 if you are above 50). For a 401(k)/403(b), the maximum amount you can contribute is $20,500 (or $27,000 if you are above 50). If you will reach those limits in a given year, it is beneficial to have a brokerage account that you can also contribute to.
Leftover Discretionary Income
Perhaps you are not as concerned about savings, but would like to try your hand at investing and trading. Opening a brokerage account allows you the opportunity to explore many different investment options and strategies that can lead to potentially large returns or generating additional income.
Whether you have one of these purposes in mind or some combination of them, defining your goals ahead of time will aid in choosing a brokerage.
Fidelity vs. TD Ameritrade
Some of the most important things to consider when opening an account are any costs and fees associated, educational and research resources offered, and the availability of customer service for when you need help. Additionally, knowing if you plan to manage everything yourself, use a robo-advisor, or work directly with an advisor will be beneficial.
Fees
Both Fidelity and TD Ameritrade offer accounts that have no minimum to open, no annual fees, and no commission charges when purchasing stocks or ETFS. They do differ when it comes to the Mutual Fund universe though, as some Fidelity funds have a trade fee of $49.95 when purchasing, while TD Ameritrade has funds that can cost up to $74.95 if the fund family does not pay them for administration services.
An additional difference comes into play if you prefer to do your trading over the phone, whether with an automated system or a live person. At Fidelity, there is a fee of $12.95 per trade when using the automated system and a fee of $32.95 if you speak with a liver person and have them place the trade for you. At TD Ameritrade though, it is only $5 and $25 respectively.
Finally, if you reach a point that you wanted to transfer out all of your assets from your account to a different broker, with Fidelity it does not cost you anything for this process while TD Ameritrade charges a flat $75 fee.
Education and Research
When it comes to resources you can use to learn from and use to help select investments, both brokerages offer a significant amount which are available on their website or within their apps. This comes in handy if you plan on doing any of the investing on your own.
Customer Service
Whichever your preferred method for contacting customer service, both Fidelity and TD Ameritrade have them covered. Both offer 24/7 phone service, email support, Twitter and Facebook messaging communication, and physical locations. Fidelity also has their own chat option and TD Ameritrade offers faxing.
Advisor Managed Options
If you are not looking to be as hands-on with your investments, both companies offer various solutions for you and your money. Fidelity offers multiple options at varying costs depending on your portfolio size and desired services.
- Fidelity Go: This is a robo-advisor option, which allows you to answer a few questions and have a pre-built portfolio selected and managed for you. This is free for accounts smaller than $10,000, but from there to $49,999 is $3 per month, and $50,000 and above is 0.35% per year.
- Fidelity Personalized Planning & Advice: This hybrid option allows you access to the same robo-managed portfolios as Fidelity Go, but offers additional services such as one-on-one financial coaching and additional financial planning. This does have an account minimum of $25,000, but then is charged at a flat rate of 0.50% per year.
- Fidelity Wealth Management: With this option, you receive a dedicated advisor who helps with more comprehensive and holistic financial planning, and a customized investment strategy built based on your risk tolerance, goals, and needs. This has an account minimum of $250,000 and fees range from 0.50% to 1.50% per year.
- Fidelity Private Wealth Management: This is the same as above, yet you are provided a full team of investment professionals and lower costs due to the increased minimum assets required. To qualify you must have $2,000,000. The annual fee ranges from 0.20% to 1.04%.
As you can see, Fidelity offers something for everyone regardless of their account size. TD Ameritrade on the other hand has only two options and does not have their own robo-advisor.
- Selective Portfolios: Offers a range of goal-oriented portfolios that are selected and managed for you based on your risk tolerance and objectives. This option has an account minimum of $25,000 and annual fees ranging from 0.75% to 0.90%.
- Personalized Portfolios: For individuals who want more customized advice and an advisor relationship, this is the route to take. It offers their most dedicated service, but requires a minimum account value of $250,000. The annual fees are between 0.60% and 0.90%.
Unique Features
It is not surprising that these companies both offer a lot of similar features, but it is worth pointing out unique features from each, especially if you plan to manage your own account.
For Fidelity, they offer the capability of purchasing fractional shares, which means you don’t have to purchase a stock at full price at any time. Whether you are dollar-cost averaging or don’t have enough to invest in a higher priced stock, you can still buy a partial share. For example, if a stock has a current market value of $500 and you want to invest $100, you’ll receive 0.20 shares.
At TD Ameritrade, they offer a service called paperMoney, which is a virtual stock market simulator that allows you to place trades with fake money to practice strategies and see how your ideas would fare. While Fidelity doesn’t have their own service for this, you can find other options online. You just miss out on the convenience of having it within the same account.
For more savvy investors, or those who want to try more advanced markets, TD Ameritrade offers the capability of trading Forex and Futures contracts, while Fidelity does not.
Making A Decision
Ultimately, you can’t go wrong choosing either platform for opening your brokerage account this year. However, the decision will be based on a number of the factors listed above. If you are looking to self-manage your account, the ability to purchase fractional shares may draw you to Fidelity. Alternatively, if it is more important that you have the ability to practice trading without having to open an additional account elsewhere, TD Ameritrade is the answer.
If you are looking for managed options though, the answers are a little more clear. If you have a smaller account size or specifically want the robo-advisor option, you benefit from choosing Fidelity. However, if you plan to invest between $250,000 and $2,000,000, you may receive a lower cost with TD Ameritrade while still receiving the one-on-one attention and personalized portfolio.
Regardless of your choice, it is an admirable goal to want to save and invest more of your money.