Our online brokerage "Best Pick"
Michael Abramowitz

We spent real money -- more than $1,000 in commissions -- to pick the best broker for you. And the winner is ...

Mirror, mirror on the Wall Street wall, who's the best online broker of them all?

Bankrate.com went on a two-day stock-trading bargain hunt, spending real cash at five top online brokerage sites: Ameritrade, Charles Schwab, Datek Online, E*TRADE and Fidelity Investments. To experience what "mom and pop" investors do when they trade online, we graded each e-commerce brokerage in several categories, from funding amounts to commission schedules and the number of times their system rejected trade orders.

When the smoke cleared on the Internet trading floor, Datek Online was Bankrate.com's "Best Pick."

Why? Their minimum funding requirements are a relatively low $2,000. They confirmed the availability of initial deposits to our account several days faster than the competition and gave current account balances after each trade, unlike other online brokers. Also, Datek's commissions are less than $10 -- that made the capitalist piggies among us squeal with delight.

What's more, Datek's system performed without a hiccup. We especially liked finding up-to-date news about a company with the free real-time stock quote.

And best of all, Datek sends instantaneous confirmation of trades via e-mail.

This feature must be popular with investors, because rival Ameritrade recently announced that they had begun offering the same service upon request. Imitation is the sincerest form of online flattery.

We note that the Securities and Exchange Commission censured Datek in May of 1999 for the improper transfer of customer funds during 11 days in 1998. But several people in the know assured us that Datek has put this problem behind them.

The company has radically changed its management structure and roster since then, and its finances are significantly better, according to Henry Klehm, who was a SEC attorney on the case.

For example, in October 1999, Jeffrey Citron, a Datek co-founder accused of money mismanagement, agreed not to work for the firm for the next two years due to the financial scandal.

In the final analysis, the combination of low commissions, ease of use and performance still makes Datek the best bet for the average investor providing they can keep their noses clean.

Testing the rest

Looking at the competition, E*TRADE's $1,000 funding requirement is certainly cheaper than Datek's, but its commission rates don't compete. We were especially disappointed in E*TRADE's $19.95 charge for NASDAQ trades. Their system also spit out one of our sell orders, costing us money because the price fell before we could resubmit the trade.

Meanwhile, Fidelity performed flawlessly, and to their credit their charges are getting better for the average investor. Nevertheless, Fidelity's $5,000 minimum is equal to Schwab's and twice that of their closest competition.

Their commissions, though improving, still have room for growth. Their $25 commissions are still too high for the small investor. Also, we waited two weeks to receive a confirmation that our account was open before we could begin trading. If that's how long it takes to trade in the future, we prefer the past.

We have similar complaints about Schwab, which also took two weeks to confirm our initial deposit. Although their minimum funding demand is way out of line at $5,000. Also, Schwab's commissions of $29.95 are far too much money for online trading, even if they provide a broker to give advice.

Also, we don't like the fact that Schwab limits the number of times a customer can get a real-time quote for free. The count is kept in a "quote bank." Every time you make a trade, Schwab adds 100 free quotes to the pot. But once you run out of quotes, they charge 65 cents per request. This advice should be free, especially if the company is charging higher commissions than the competition. Despite these drawbacks, Schwab's system was without quirks.

Sadly, the same can't be said for Ameritrade. Five times during the first day of trading, we were bumped off their system while making a trade. In a moving market, this can have serious repercussions money-wise.

To the company's credit, whatever problem caused our trades to be rejected on the first day did not resurface on the second day. We do praise Ameritrade for their $8 commissions, but we warn them that trades derailed by computer glitches are not going to make customers happy. Also, as with Fidelity and Schwab, two weeks to process our account was one week too many.

All the sites executed trades in about the same amount of time -- when the trades weren't rejected. When brokerages are trading at the same speed, it comes down to price and features, especially for the "mom and pop" investor.

And Datek stood head and online shoulders above the rest. Their system ran smoothly, and their Web site defines the word user-friendly. Congratulations and keep up the good work. You get high marks for your efforts.

Editor's note: The sites reviewed were taken from the top seven entries on the Media Metrix May 1999 list of most-visited online brokerages. Two sites were eliminated: DLJ Direct, which declined our application, and Discover Brokerage, which refused to accept our third-party checks.

This review should not be taken as an endorsement of day trading. We make no recommendations on the specific stocks traded for this report. Bankrate Inc. management and staff may or may not hold positions in these companies.

-- Posted: Aug. 27, 1999