Best brokers for fractional share investing in November 2020

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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 Amazon and Apple.

The ability to buy fractional shares is huge, especially for investors just starting out. You can start investing with a much more modest amount of money, and with some stocks ranging about a thousand 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 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 split 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 who allow either kind of fractional shares and describes key details of each broker’s program and offering.

The best brokers for fractional share investing:

Overview: Top online brokers for fractional share investing in November 2020

Charles Schwab

Charles Schwab has long been an investor-focused outfit, and in 2020 it offered another benefit to investors, allowing them to buy a fractional share of any stock in the Standard & Poor’s 500 Index. 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 10 slices a time. And like trades for regular shares, you’ll be able to place your trades without a trading 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 routinely is 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 the exchange. You’ll still be able to purchase stocks with zero trading commission, 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 option 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 as well as foreign stocks trading as American depositary receipts (ADRs).

Fractional purchases: Yes

Fractional dividend reinvestment: No

Securities in the program: More than 9,000 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.

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 in an estimated 18-36 months. 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. (Charles Schwab has purchased TD Ameritrade, and will eventually integrate the two companies.)

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 who’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 and buy fractional shares. E-Trade will reinvest dividends only in a stock or ETF that is trading above $5 per share. (Morgan Stanley has purchased E-Trade, and is operating the broker as a separate unit.)

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 while you can buy fractional shares when you’re placing an order of this type of security, that’s the only kind of fractional purchase that you’ll be able to do. Vanguard does not offer fractional share investing in stock or 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 in mutual funds

Fractional dividend reinvestment: Yes

Securities in the program: Stocks, ETFs and mutual funds

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