— -- Q: What are some of the most bogus fees online brokerages charge?
A: Investors head toward low trading commissions like moths to light. But investors are often blind to the fact many online brokers are still charging ridiculous and often hidden fees that can add up fast.
Brokers have gotten smart about promoting the commission, which at most firms is $10 or less, but tucking away the other fees from sight. And these other fees can be much higher than commissions and harder to find out about before you open an account.
Below are some of the types of fees that brokerages charge that you should be aware of and strongly consider before opening an account, including:
•ACAT fees. ACAT fees, or account transfer fees, are particularly irksome. These are fees most brokerages charge you if you move your brokerage account to another firm. These fees range greatly, but are usually anywhere between $50 and $100.
ACAT fees in this day and age of electronic transfers are little more than financial roach motels. Brokers use them to punish customers for moving their money and hold them captive. Additionally, brokers do their best to hide these fees on their Web sites, usually under the "other fees" heading. Brokers that rely on ACAT fees to retain customers would be better served providing compelling value instead, so customers wouldn't want to leave.
There are several ways to fight ACAT fees. One thing you can do is think twice before opening accounts with brokers that charge them. Neither Scottrade nor Vanguard Brokerage Services, for instance, charge transfer fees. TD Ameritrade will do a partial transfer of your account for free, which is reasonable. TD Ameritrade, though, charges standard customers $75 for a full account transfer.
You can also avoid ACAT fees by being strategic. If you only have a few stocks in your portfolio, and have losses in them, you can sell them. Once you're in cash, you can transfer the cash, for free, to a savings account electronically. Next, you can set up the new brokerage account and transfer the cash in. You can then buy the stock back at the new brokerage, as long as you wait more than 30 days after you sold. If you have stocks with unrealized capital gains, this strategy might not make sense in light of the tax ramifications. Also, if you have many stocks to buy and sell, it might have been less costly just to pay the ACAT fee.
Hopefully more brokers will move to eliminate ACAT fees, and instead use service and quality to retain customers.
•Account maintenance or inactivity fees. There are some brokerages that charge you literally for nothing. Most of these fees are designed to discourage investors from maintaining small accounts for a long time. The best way to avoid these fees is to stay above the minimum deposit thresholds. Vanguard, for instance, charges $20 a year unless you have $50,000 or more in all your Vanguard accounts. Tradeking socks you with a $50 annual change unless you have $2,500 in your account or trade at least once a year.
To avoid this fee make absolutely sure you meet the trading or balance requirement of the brokerage. If you can't meet the requirement, move your money. You should never pay account maintenance or inactivity fees in this day and age.
FAQs
A brokerage fee is a fee or commission a broker charges to execute transactions or provide specialized services on behalf of clients. Brokers charge brokerage fees for services such as purchases, sales, consultations, negotiations, and delivery.
What are the four types of fees that you might be charged by a broker? ›
The different types of brokerage fees you may encounter include:
- Mutual fund fees, including sales loads and 12b-1 fees.
- Trading spreads.
- Trading commissions.
- Assets under management (AUM) fees.
- Account fees.
Fortunately, transaction fees are easily avoided by selecting a broker that offers a list of no-transaction-fee mutual funds — most do. Many funds on this list will be from the broker itself, but other mutual fund companies often pay brokers to offer their funds to customers without a transaction cost.
How do you explain brokerage fees? ›
Brokerage fees are any commissions or fees that your broker charges you. Also called broker fees, they are generally charged if you buy or sell shares and other investments, or complete any negotiations or delivery orders. Some brokerages also charge fees for consultations.
What is the difference between a brokerage fee and a commission fee? ›
Brokerage Fee Vs Commission
A brokerage fee is a charge that a broker takes to execute any financial transaction on behalf of their clients whereas a commission is a type of brokerage that they charge for stock trading.
What is the difference between a brokerage fee and a commission? ›
The main distinction between commission and brokerage is that commission is a fee paid for a service or transaction, often in various sectors, while brokerage specifically refers to fees charged by brokers for executing financial transactions, like stock trades. A fee paid for services or facilitating a transaction.
Who charges highest brokerage? ›
Brokerage Comparison
| Name | A/C opening charge | Delivery Brokerage |
|---|
| HDFC Securities | Rs.999/Free | 0.50% or minimum Rs.25 or ceiling of 2.5% on transaction value |
| SBI Securities | Rs.850 | 0.50% or 5 Paisa per share (whichever is high) |
| Kotak Securities | Rs.499/Free | 0.25% |
| Fyers | Free | ZERO |
9 more rowsExamples of brokers with Lowest brokerage charges in India include Zerodha, Angel One & Kotak Securities . These platforms often appeal to traders and investors seeking cost-effective options with transparent fee structures, providing a variety of financial instruments at competitive rates.
What is the minimum brokerage that a broker can charge? ›
Minimum Brokerage Amount (Full-service)
| Broker | Minimum Brokerage | Brokerage (Eq Delivery) |
|---|
| Kotak Securities | Rs 21 per executed order | 0.25% (Minimum Rs 20 per trade) |
| HDFC Securities | Rs. 25 per order on equity segment | 0.32% |
| Motilal Oswal | Rs 25 for Delivery | 0.20% |
| SBI Securities | Rs 0.05 for Cash, Rs 0.01 Future | 0.50% |
6 more rowsWhile it may seem backward, paying a broker's fee can save you money and lots of stress in the process. Brokers get you access to more potential listings and provide you an avenue to negotiate many details of the rental agreement, from the price to services you don't want to be responsible for.
You can reduce brokerage costs by choosing from a wide range of inexpensive investment options in the realm of online trading. Instead of actively managed mutual funds, and think about investing in exchange-traded funds (ETFs) or index funds, which often have lower fee ratios.
What is the proper way for a broker to handle an advance fee? ›
Advance fees will be deposited in the broker's trust account. The funds belong to the client of the broker, not the broker, and cannot be withdrawn by the broker before they are earned and a statement is sent to the client.
How do brokerages make money? ›
How Does a Brokerage Firm Make Money? Generally, brokerages make money by charging various fees and commissions on transactions they facilitate and services they provide. The online broker who offers free stock trades receives fees for other services, plus fees from the exchanges.
What is the best brokerage account? ›
Best Online Brokerage Accounts and Trading Platforms of 2024
- Best Overall: Fidelity.
- Best for Low Costs: Fidelity.
- Best for Beginners: Charles Schwab.
- Best for Advanced Traders: Interactive Brokers.
- Best for ETFs: Fidelity.
- Best for Options Trading: tastytrade.
- Best for International Trading: Interactive Brokers.
Understanding Brokerage Charges
Brokerage charge is 0.05% of the total turnover. Suppose the stock you buy costs Rs 100. Then the brokerage charge is 0.05% of Rs 100, which is Rs 0.05. Then, the total brokerage charge on the trading is Rs 0.05+ 0.05, which is Rs 0.10 (for buying and selling).
Why is commission charged? ›
Commissions are charges made by an investment professional for buying or selling securities for you. They are to compensate the professional for their work. Commissions are usually a set percentage of the value of the investments traded.
When a broker-dealer charges a commission? ›
When the broker-dealer acts as your agent, the charge will be called a commission; when the broker- dealer acts as a principal (as the opposite party to you in the transaction), the charge is called the “mark-up” or “mark-down” (described more below). Agent – Suppose that you want to buy 100 shares of ABC stock.
What commissions are paid to brokers? ›
How do mortgage broker commission rates work?
- Upfront commission: 0.65% (+GST) to 0.7% (+GST)
- Trail commission: 0.165% (+GST) to 0.275% (+GST)
Example: A salesperson earns $500 a month in salary with 10% commission, or $500, for $5,000 worth in sales. If he sells $20,000 of product in one month, he earns $2,500: $500 in salary and $2,000 in commission.
