As competition among stock brokers has heated up, online players have rushed to provide new features to their clients, including being able to invest in fractions of a share. This feature allows investors to purchase a stock or ETF with almost any amount of money rather than needing to have enough cash to buy a full share. It’s perfect for high-priced bellwether stocks such as Alphabet and Amazon.
The ability to buy fractional shares is very attractive, especially for investors just starting out. You can invest with a much more modest amount of money, and with some stocks selling for thousands of dollars per share, you can buy what you can afford. With this feature it’s much easier to use dollar-cost averaging, especially now that major online brokers have slashed their transaction fees to zero.
But while some brokers have just begun allowing investors to buy fractional shares, others have allowed them to do so indirectly as part of dividend reinvestment plans for many years. That’s the case even if the brokers didn’t offer trading of fractional shares. This divide still exists today, with some brokers offering fractional shares via dividend reinvestment but not otherwise.
With dividend reinvestment plans you’re able to purchase only the stock that made the payout, and no other. Of course, now with no trading commissions at all the major online brokerages you can reinvest the cash yourself with no extra cost, except a little bit of your time.
Below Bankrate highlights online stock brokers that allow fractional shares to be traded and describes key details of each broker’s program and offering.
The best brokers for fractional share investing:
- Charles Schwab
- Fidelity Investments
- Interactive Brokers
- Robinhood
- TD Ameritrade
- E-Trade
- Merrill Edge
- Vanguard
- Tastytrade
Overview: Top online brokers for fractional share investing inDecember 2023
Charles Schwab
Charles Schwab has long been an investor-focused outfit, and starting in 2020 offered another benefit to investors, allowing them to buy a fractional share of any stock in . Called Stock Slices, Schwab’s program allows you to buy a slice of these stocks with as little as $5 and you can buy up to 30 slices at a time. And like trades for regular shares, you’ll be able to place your trades without a commission. You’ll continue to be able to reinvest any dividends from your stocks into fractional shares of the same stock.
Fractional purchases: Yes
Fractional dividend reinvestment: Yes
Securities in the program: ~500, including all stocks in the S&P 500
Fidelity Investments
Fidelity is routinely a top contender among brokerages, and not surprisingly features a way to buy fractional shares, which it calls Stocks by the Slice. You can start with just $1 and buy shares of more than 7,000 stocks and ETFs listed on U.S. exchanges. You’ll still be able to purchase stocks with zero trading commissions, and you’ll also be able to reinvest your dividends in more shares, even fractional shares, whether they’re stocks or ETFs.
Fractional purchases: Yes
Fractional dividend reinvestment: Yes
Securities in the program: More than 7,000 stocks and ETFs
Interactive Brokers
Long known as a high-powered alternative for professional and active traders, Interactive Brokers also offers fractional shares, which is a boon to investors without those deep pockets. You can purchase fractional shares on the broker’s Pro platform (cost: $1 or at the broker’s tiered rate) or on its Lite platform, where trading is free. However, only stocks with average daily volume of $10 million or a market cap greater than $400 million are eligible for the program. Also eligible: ETFs, foreign stocks trading as American depositary receipts (ADRs), Canadian stocks and ETFs, and European stocks.
Fractional purchases: Yes
Fractional dividend reinvestment: No
Securities in the program: More than 11,000 stocks, ETFs and ADRs
Robinhood
Robinhood has long been known for its commission-free trading (which extends to options, too) but it also allows you to buy the tiniest fraction of a share. Yes, you can buy as little as one-millionth of a share of your favorite stocks, and you can buy a huge variety of stocks as well. Stocks trading over $1 per share and with a market capitalization greater than $25 million are eligible for the program and ETFs are available for fractional shares, too. You can also reinvest dividends into fractional shares, but must enable the fractional feature first.
Fractional purchases: Yes
Fractional dividend reinvestment: Yes
Securities in the program: ETFs and stocks above the volume and size thresholds
TD Ameritrade
TD Ameritrade doesn’t offer fractional share purchases, but that won’t matter for much longer, since the broker has now been officially acquired by Charles Schwab. However, the broker will still be opening new accounts until it’s officially rolled into Schwab sometime in 2023. TD allows you to reinvest any dividends you receive into new shares of that company’s stock. So you’re still able to reinvest your whole dividend and grow your payout.
Fractional purchases: No
Fractional dividend reinvestment: Yes
Securities in the program: More than 5,000 stocks as well as ETFs and mutual funds
E-Trade
E-Trade is another broker that’s been acquired (by Morgan Stanley), but the broker figures to continue on under its own banner. The broker doesn’t offer fractional purchases of stock, but it does allow investors to reinvest their dividends into fractional shares. E-Trade will reinvest dividends only in a stock or ETF that is trading above $5 per share.
Fractional purchases: No
Fractional dividend reinvestment: Yes
Securities in the program: Thousands of stocks and ETFs
Merrill Edge
Merrill Edge is another broker that allows dividend reinvestment in fractional shares but does not allow clients to purchase fractional shares directly. Merrill lets investors reinvest dividends from stocks and ETFs as well as mutual funds. You can quickly set up whether you want each security in your portfolio to reinvest with an online selection, and if you change your mind, you can flip your choice later on just as easily.
Fractional purchases: No
Fractional dividend reinvestment: Yes
Securities in the program: Thousands of stocks, ETFs and mutual funds
Vanguard
Vanguard is well known for its mutual funds and ETFs, and while you can buy fractional shares when you’re placing an order of these types of securities, that’s the only kind of fractional purchase that you’ll be able to do. Vanguard does not offer fractional-share investing in stocks or non-Vanguard ETFs, though the broker does allow you to reinvest dividends in stocks, ETFs and mutual funds. However, the broker will not reinvest in certain low-volume stocks, some U.S. stocks and all foreign stocks.
Fractional purchases: Only Vanguard in mutual funds and ETFs
Fractional dividend reinvestment: Yes
Securities in the program: Stocks, ETFs and mutual funds
Tastytrade
Tastytradeis one of the best brokers for short-term traders, but with the addition of fractional shares for both purchases and dividend reinvestment, it’s now a more interesting option for long-term investors, too. You’ll have to place a minimum order of $5, and you’re able to use only market orders, not limit orders, meaning you’ll have to accept the prevailing price at the time you place your order.
Fractional purchases: Yes
Fractional dividend reinvestment: Yes
Securities in the program: Thousands of stocks and ETFs
Alright, let's break this down!
Firstly, the concept of investing in fractions of shares has revolutionized stock market accessibility, especially for beginners. This approach allows individuals to invest small amounts of money into high-priced stocks like Alphabet or Amazon without needing the cash for a full share. It's an ideal strategy for dollar-cost averaging, making the most of fluctuations in stock prices over time.
Several major online brokers have embraced fractional share investing, each with its own program specifics:
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Charles Schwab's "Stock Slices" program enables purchasing slices of stocks with as little as $5, allowing up to 30 slices at a time, commission-free. They also facilitate fractional dividend reinvestment for approximately 500 securities, including all stocks in the S&P 500.
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Fidelity Investments offers "Stocks by the Slice," allowing investments starting from $1 in over 7,000 stocks and ETFs. Similar to Schwab, they provide commission-free stock trading and support fractional dividend reinvestment.
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Interactive Brokers cater to both professional traders and smaller investors, offering fractional shares on its Lite platform for free but with specific eligibility criteria based on stock volume and market cap. However, they do not support fractional dividend reinvestment.
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Robinhood, known for commission-free trading, allows investors to buy incredibly small fractions of shares, even one-millionth of a share, for stocks trading over $1 and meeting certain market capitalization thresholds. They do support fractional dividend reinvestment, provided the feature is enabled.
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TD Ameritrade, although not offering fractional share purchases directly, allows reinvestment of dividends into new shares of the paying company's stock.
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E-Trade and Merrill Edge both permit dividend reinvestment in fractional shares but do not directly support the purchase of fractional shares.
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Vanguard primarily allows fractional share purchases for Vanguard mutual funds and ETFs but does not extend this feature to other stocks. They do support dividend reinvestment across a variety of securities, though with some limitations on low-volume and foreign stocks.
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Tastytrade, recognized for short-term trading, now offers fractional share purchases and dividend reinvestment, requiring a minimum order of $5 and supporting thousands of stocks and ETFs.
Each broker's approach varies regarding fractional purchases and dividend reinvestment, making it crucial for investors to align their preferences and investment goals with the specific offerings of these platforms. The evolution of fractional share investing has significantly diversified investment opportunities for individuals with varying capital sizes, making the stock market more inclusive and accessible.
