Charles Schwab will begin offering commission-free online trading for U.S. stocks, exchange-traded funds and options on October 7, the company announced Tuesday. Previously, each trade cost investors $4.95.
Commission fees are charged by a brokerage when you buy or sell a stock, ETF or other type of investment product. Traditionally, they range in price, depending on the company, from anywhere to $1 to $50.
That started to change a few years ago. Robinhood, an investment app, has offered commission-free stock trades since 2013. More recently, Vanguard, J.P. Morgan, Interactive Brokers and other firms have also announced their own free trade options, as brokerages lower costs to remain competitive, and on Wednesday T.D. Ameritrade announced its U.S. brokerage firm will begin offering free trades for its online stocks, ETFs, and options starting October 3.
That's a win for investors, who are benefiting from lower costs overall. Fees, including trade commissions, can eat into your investment returns, even if they are as low as $5 or $10, making avoiding them whenever possible the smart move.
While fewer fees are always a good thing for your investment account, there are a few things to keep in mind if you are thinking about switching to a brokerage offering free or discounted trades.
There's more to picking a brokerage account than the commission. No-fee trades are enticing, but if you're opening an account, you'll also want to consider the broker's educational tools and investment research offerings. This is especially important if you're new to investing and will want advice or information on all of your options.
Schwab, for example, offers online investment research and other guidance, as well as 24/7 customer service if you have a brokerage account there.
Even if a broker advertises no-fee trades, you should also check that the other fees on their investment offerings — like expense ratios and plan administration fees — are low or in-line with the rest of the industry.
And make sure that the investments you want to buy are included in each broker's no-fee offerings.
Just because trading has become less expensive at many brokerages doesn't mean you should trade stocks and ETFs in your portfolio more often.
Ideally, when you buy an investment, you are doing so for the long-term. Investors can only benefit from compound interest if they leave their wealth to build over many years. Moving your money around frequently could hinder that. Individual investors are terrible at timing the market "correctly," meaning they often sell at the wrong time. Making trading even more appealing by slashing fees could harm their portfolio.
Plus, frequent trading could have negative consequences come tax season, Ryan J. Marshall, a New Jersey-based certified financial planner, tells CNBC Make It. When you sell an ETF you're creating a taxable event, which you might not account for at the time.
"Before making a switch, they should always check the tax implication at the time of the trade, as well as how will the ETF perform from a tax standpoint over a longer period of time," says Marshall. "Some ETFs are much more tax efficient than others."
Above all, stick to your long-term investment plan. If you weren't planning on trading a certain stock or ETF before you found out that the fee was slashed, then there's no reason to do it now.
Editor's note: This story was updated on Wednesday with T.D. Ameritrade's announcement that it is also eliminating certain commission fees.
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