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Online brokerages -- the best deals

Online brokerage surveyWhen it comes to the do-it-yourself world of online trading, the first thing most people want to know is how much it will cost to trade.

But some investors place more importance on the amount of cash needed to open an account. For others, the services provided are the primary issue.

In short, no one online brokerage will fit the needs of all investors.

Five firms don't offer touchtone trading. That can be a major drawback because it eliminates a mid-price trading option. Most firms charge their lowest rates for online trades, have a slightly higher fee for touchtone trades and charge the most for trades involving a representative.

So, if you want to trade when you don't have access to a computer, those five firms force you to pay the highest fee by using a representative. That could make those firms more costly to use in the long run than a company that offers touchtone trading even though they might have cheaper fees in other areas.

While not offering touchtone trading weighed heavily in evaluating the best companies for stock trading, it seems to be less of a drawback when it comes to mutual fund trading. Rarely do you hear of a hot tip in a mutual fund that makes an investor reach for the nearest phone. You'll have to decide based on your own trading preferences and needs.

Here are the picks for the best in three categories: overall excellence, the best for stock traders and the best for mutual funds.

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Overall excellence -- the top five
1) Dollar for dollar, the company that will make your investment money go furthest is Brown & Co. It charges $5 for an online market order and $10 for a limit order of up to 5,000 shares. The company's fees for mutual funds are low, too. The rap against Brown is the $15,000 minimum to open a stock account. But that probably isn't an issue for anyone but the newest investors. What may be more of an issue is that this isn't the company to use if you need investment advice. Brown keeps its fees low by targeting investors who want to make their own decisions.

2) Scottrade would be the place to go if you're looking for a little more in the way of service and are willing to pay slightly higher fees. Scottrade's fees are super cheap -- $7 for online market orders, $12 for limit orders and only $500 opens an account. Another plus -- those fees are for unlimited shares.

When it comes to mutual funds, Scottrade sticks with the $500 minimum and doesn't charge a transaction fee for non-NTF load and no load funds.

3) Ameritrade and Scottrade tend to run neck and neck in our surveys. Ameritrade's trading fees are slightly higher but still very good -- $8 and $13 for online market and limit orders, respectively, with no limit on the number of shares. Right now Ameritrade requires $500 to open an account; that's supposed to go to $2,000 after June 26, 2001.

4) Bidwell & Co. doesn't have a minimum to open a stock account and it simply requires the fund minimum to trade mutual funds. While Bidwell's trading fees are relatively low -- $12 online market, $15 online limit -- those fees are only good for up to 1500 shares. Still, for most investors, 1500 shares are far more than they'd trade.

5) Dreyfus rounds out the top five. It also requires no minimum to open a stock account and charges just $15 to trade unlimited shares for either an online market or limit order. It requires the fund minimum when it comes to mutual funds and offers a selection of several thousand funds.

The best for stock trading -- the top 10
1) Brown & Co. again takes the top spot when talking strictly about trading stocks. No one beats its low fees. Just pony up the $15,000 minimum.

2) If $15,000 is too much, Scottrade's minimum is $14,500 less and may be a great option for you. Not only does it have a low minimum and low fees, it also has 130 branch offices -- a nice perk for online traders, knowing that when you want to you can discuss your account with someone in person.

3) Ameritrade only has a couple of branches, but its fees are very low and its trading support personnel are top notch. Like most of the online brokerages, Ameritrade has been hard-hit by a slowdown in trading during the tech bear market. The company has announced two rounds of layoffs this year and plans to add a quarterly maintenance fee to generate revenue.

4) Bidwell & Co. gets a lot of points for not requiring a minimum to open a stock account and for its relatively low trading fees. Just make sure you don't need a representative to help place a trade -- that can cost up to $60 for 500 shares.

5) Dreyfus missed out on getting the No. 4 spot in our survey because its fee for an online market order is $15, three bucks more than Bidwell's. Since that's the most popular way for online investors to trade, it counts a lot. Otherwise, Dreyfus has a better deal with no limit on shares and cheaper fees for having a representative-assisted trade.

6) National Discount Brokers has no minimum and charges $14.75 for an online market order up to 5,000 shares, and $19.75 for an online limit order. Our research team experienced only one snafu with them when no mutual fund information was included in the packet we requested.

7) CSFBDirect came into being, since our last survey, when Credit Suisse First Boston gobbled up Donaldson, Lufkin, Jenrette and took over its online brokerage service, DLJDirect. There is no minimum to open an account and it's $20 for an online market or limit order up to 1,000 shares.

8) TD Waterhouse has a $1,000 minimum to open an account, but its $12 and $15 fees for online market and limit orders up to 5,000 shares are on the low end of the scale. The company has 170 branches across the nation.

9) American Express has no minimum to open an account and its fees are reasonable -- less than $20 to trade up to 3,000 shares for either a market or a limit order. However, having a representative assist you place an order will cost $75. The $50 annual maintenance fee is waived with four trades a year or a $25,000 balance.

10) E*Trade is one of the biggest and best-known online brokerage firms and is aggressively building a presence offline with ATMs and kiosks in SuperTarget stores and expanding its online presence with an online bank. Its online trading fees are reasonable and the company requires only $1,000 to open an account. But it charges a $15 quarterly maintenance fee. The fee is waived if you make two trades every six months or maintain a balance of $5,000. Another negative is it took 19 days and two requests for our research department to receive an information packet.

The best for mutual fund trading -- the top 10
1) Scottrade takes the prize with its wide selection of more than 7,000 individual funds, a $500 minimum and no transaction fees on any mutual fund transaction. That's a big change from our last survey when Scottrade charged a $17 transaction fee on all mutual fund trades.

2) Web Street Securities has no minimum to open a mutual fund account and charges no transaction fees for trades over $500.

3) Merrill Lynch Direct does not have touchtone trading and does require a $2,000 minimum to open a mutual fund account. There are no transaction fees if you hold your mutual funds for six months. No NTF funds.

4) Datek wants $500 to open an account and offers no NTF funds. Datek charges $9.99 on no load transactions. There is no transaction fee on a non-NTF load fund. Datek offers more than 3,000. No touchtone trading.

5) Ameritrade requires a $500 minimum to open an account and a flat $18 to trade mutual funds. The commission on non-NTF load funds is $18. The company offers more than 9,000 mutual funds.

6) Brown & Co. requires just the fund minimum and charges $19 to trade mutual funds -- but funds are available only by phone. Sales load is also $19.

7) National Discount Broker has no minimum to open an account. There's no transaction fee on non-NTF load funds and there's no sales charge if held more than six months. The company offers more than 880 NTF funds; charges $20 if the purchase is under $5,000, but charges $51 if the fund is sold in less than six months. If you ask the trading support personnel to mail you an information packet, be sure to let them know you also want mutual fund information. None was included in the packet sent to our researchers.

8) E*Trade wants a $1,000 minimum deposit but requires you to hold NTF funds for only 90 days to avoid paying an early redemption fee. There's a $24.95 transaction fee for buying and selling non-NTF no load funds, and the company charges a relatively high $49.90 to exchange funds within the same family. There's no transaction fee on non-NTF load funds.

9) Accutrade has 642 NTF funds and a brochure that clearly defines them. There's a redemption fee for selling a fund in less than six months. There's no transaction fee on non-NTF no load or load funds held longer than six months.

10) Muriel Siebert requires the fund minimum to open an account and has nearly 1300 NTF funds. Fees are imposed for redemptions in less than 90 days. There's a $35 fee for trading or exchanging non-NTF no load funds, but no fee for non-NTF load funds. Be careful when talking to trading support personnel. Our researchers found the knowledge of fees for non-NTF no load mutual funds varies.

 

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See Also
Online brokerage survey homepage
PLUS: Checking out the online brokerages
AND: Market slump punishes brokers, too

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