Investors’ demand for exchange-traded funds (ETFs) continues to grow. ETFs are a cost-effective way for novice investors to begin investing in the stock market and they remain a great diversification tool for experienced investors. The attraction of ETFs is owed to their lower fees, as well as the lower risks they provide through broad diversification. We’ve evaluated the ETF research, screening tools, commissions, trading platforms, and other related features to help you find the best online brokers for ETFs.
Best Online Brokers for ETFs:
Fidelity: Best Online Broker for ETFs
- Account Minimum: $0
- Fees: $0 for stock/ETF trades, $0 plus $0.65/contract for options trade
Why We Chose It
Fidelity is a new winner this year as our pick for Best Online Broker for ETFs, in addition to being our best overall pick among brokers. We chose Fidelity for the top slot because they have increased efforts to meet customers’ needs by adding over 16,000 new associates and introducing new platform offers and tools. Fidelity has also enhanced their mobile platform for all trading, including ETFs. The competition for this category has been close between Fidelity and Charles Schwab in recent years. However, Fidelity’s offering of fractional share trading for ETFs is what has moved this broker to the front of the pack.
Overview
Fidelity was founded in 1946 to strengthen and secure their clients’ financial well-being, and this mission is the same today. Not only is Fidelity a global brokerage firm, but the company also manages various types of assets, such as mutual funds, ETFs, fixed income investments, and alternative investments. Fidelity also provides retirement plans for employers and financial planning services.
Fidelity experienced tremendous growth over the past year and has introduced several new products to meet the needs of their clients. They introduced two new digital, direct indexing platforms,Fidelity Managed FidFolios andFidelity Solo FidFolios. Fidelity has also refreshed its suite of mobile apps, which give customers the flexibility to interactively trade, manage accounts, and more, from their mobile devices. Fidelity also launched several new ETFs in 2022, including two bond funds following environmental, social, and governance (ESG) criteria, one following companies providing the technology around cryptocurrency, and one focused on the metaverse.
You can find ETF-related education and topics in Fidelity’s learning center. The customizable ETF screener is a great tool to help investors identify specific ETFs based on various characteristics, including socially responsible investing (SRI) criteria. You can also compare multiple ETFs using the same screener. Fidelity’s Research tool can also be leveraged to evaluate ETFs, providing comprehensive information on risk factors, growth outlook, top holdings, performance,volatility, and more. The tools are easily accessible on Fidelity’s website and mobile apps.
Customers can receive direct help and guidance from a Fidelity advisor at one of their 200 investor centers across the United States. Fidelity has more than 52,000 associates and their customers consist of over 43 million individuals and 23,000 businesses. As of the end of the first quarter of 2022, Fidelity reported that 1.5 million new brokerage accounts were opened, and 42% of these new accounts were opened by investors between the ages of 18 and 35.
Charles Schwab: Best ETF Screeners
- Account Minimum: $0
- Fees: $0 for stock/ETF trades, $0.65 per contract for options.
Why We Chose It
We selected Charles Schwab to win best broker for ETF screeners because of their diverse selection of trading platforms and tools, their robust ETF screening tool, and the direct access customers have to their accounts through Schwab.com or the Schwab Mobile app. Charles Schwab provides real-time market research data for their customers along with its excellent screener, making well-informed investing decisions easy for investors.
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High no-load mutual funds transaction fee
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Minimum fee for Schwab Intelligent Portfolios account
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No fractional share trading in ETFs
Overview
We selected Charles Schwab to win best broker for ETF screeners because of the robust ETF screening tool, variety of trading platforms and tools, and the flexible digital platforms available to customers to access their accounts.
Charles Schwab was originally formed in April 1971 as First Commander Corporation by Chuck Schwab and his partners, and the company’s name was changed to Charles Schwab & Co., Inc. in 1973. The company’s goal has always been to put the customer first and provide more value and better experiences than their competitors as part of their “Through Clients’ Eyes” philosophy.
In July 2022, Schwab Asset Management launched a new crypto ETF called Schwab Crypto Thematic ETF (STCE). STCE’s annual operating expense ratio is 0.30%, making it the lowest-cost crypto ETF currently available. In 2021, Charles Schwab increased its focus on socially responsible investments and launched the Schwab Ariel ESG ETF, which is the first ESG fund and the first active ETF for the company. Charles Schwab plans to invest over $2 billion to improve their systems accessibility, enhance their information security systems, and make it easier for customers to conduct business with them.
Charles Schwab provides an automated investing tool for customers called Schwab Intelligent Portfolios, which uses a robo-advisor. Customers also have access to 24/7 live support from a Schwab investment professional if they have questions. As of June 30, 2022, Charles Schwab services 33.9 million brokerage accounts, manages $6.83 trillion of customers’ assets, and has $546.4 billion in proprietary mutual funds and ETFs. Customers can use the Schwab Mobile app 24/7 to manage and monitor their accounts, make trades, deposit checks, research the market, and more. The app has an intelligent assistant called Schwab Assistant, which allows customers to use voice commands to do things such as make trades, set alerts, find answers to their questions, and more.
Interactive Brokers: Best ETF Research
- Account Minimum: $0
- Fees: Maximum $0.005 per share for Pro platform or 1% of trade value, $0 for IBKR Lite
Why We Chose It
We selected Interactive Brokers as the best for ETF research because their platforms and tools help customers and non-customers research and access real-time, global market data. Their ETF scanner is top notch for researching financial metrics and market prices in multiple currencies for over 150 global markets. As in many categories throughout our review, the sheer breadth of the markets covered by Interactive Brokers in a given asset class give it a huge advantage for serious investors.
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Impressive breadth of products
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ETF commission rebate program
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Extensive global market access
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IBKR’s SmartRouting not available to IBKR Lite clients
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Tiered fee-based pricing structure can be confusing
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May be too advanced for new investors
Overview
We selected Interactive Brokers as the best for ETF research because of their extensive platforms and tools that customers (and even non-customers) can use to research the global market and make fully informed investment decisions. Interactive Brokers is an incredibly robust trading platform for all assets and markets, but it can be intimidating to newer investors. If you take the time to absorb the educational content the company has been actively enhancing, however, you’ll be able to appreciate that IBKR has built one of the most powerful platforms in the industry for researching and trading ETFs.
Interactive Brokers was originally formed as T.P. & Co. in 1978 by Thomas Peterffy, who is the Chairman of the Interactive Brokers Group. The company’s purpose has always been to “Create technology to provide liquidity on better terms. Compete on price, speed, size, diversity of global products and advanced trading tools.”
Interactive Brokers has a breadth of products in desktop, mobile, and web formats, which provide investors with access to global market information and services. In 2021, Interactive Brokers launched IBKR GlobalAnalyst, a tool that investors can use to research global financial metrics and compare various investments to help them develop a diversified global portfolio. In September 2021, Interactive Brokers introduced direct crypto investing through Paxos Trust Company, and investors can use any IBKR trading tool to access crypto markets. As of August 1, 2022, Interactive Brokers has 1.95 million client accounts.
Final Verdict
Part of evaluating the best brokers for ETFs is researching the types of tools and resources they provide to help you find the right ETFs for your portfolio strategy. As technology evolves, online brokers must also upgrade their services, platforms, and tools so that customers can have access to the most current information and resources for ETFs. We found that Fidelity and Charles Schwab are focusing on providing more socially responsible ETFs and expanding ETF offerings in emerging themes that include cryptocurrencies, artificial intelligence, and digital economies. Interactive Brokers does not create ETFs, but offers access to all manner of ETFs across the globe.
There are fine points of differentiation, such as Fidelity and Interactive Brokers both offering fractional shares on ETFs, while Schwab does not. Due to the wider offering at IBKR, however, not all the ETFs available are necessarily eligible for fractional share purchase. Beyond a wide selection of ETFs, investors also need research and tools to evaluate ETFs, as well as the education and customer support to use them. These three brokers have high scores in all the categories related to ETFs and any of them will give you an excellent investing experience. In the end, though, we ultimately gave the top spot to Fidelity. Fidelity’s platform may not be as expansive as IBKR when it comes to selection, but it gives you access to fractional share trading in ETFs, along with the educational content and research tools needed without being overwhelming for casual investors.
FAQs
What Is ETF Trading?
An exchange-traded fund (ETF) is a security that tracks a basket of market assets that you can buy or sell through your broker. ETFs generally track a specific index, such as the S&P 500, Dow Jones Industrial Average (DJIA), or Nasdaq 100. ETFs have ticker symbols and intraday price data, and they are bought and sold just like stocks on stock exchanges. You can gain exposure to virtually any market or industry sector by trading ETFs, so they can be an important diversification tool.
Who Should Invest in ETFs?
Investors seeking broad diversification for their portfolios should consider purchasing ETFs. ETFs typically have low trading fees, which are on average lower than mutual funds trading fees. Additionally, ETFs have greater tax efficiency than actively managed mutual funds. ETFs trade like stocks, so investors can trade ETFs during normal market hours. ETFs are worth considering if you are looking for these benefits and need a true passive investment that won’t require constant maintenance. ETFs are a great choice for all levels of investors. For instance, experienced investors may use ETFs to act as a proxy for specific markets and asset classes in establishing multi-asset or multi-market trades.
What Is the Difference Between ETFs, Stocks, and Mutual Funds?
Stocks, ETFs, and mutual funds are types of securities, but they differ in terms of risk, costs, tax efficiency, and how you buy and sell them.
How Do I Buy an ETF online?
ETFs trade on stock exchanges just like stocks. You can buy and sell ETFs through your brokerage account during regular market hours (when the stock exchanges are open). Many brokers today offer commission-free trading for ETFs; however, ETFs charge fees, known as expense ratios. The expense ratio is listed as an annual percentage. For example, a 1% expense ratio means you’ll pay $10 for every $1,000 you invest in the ETF. The expense ratio can take a significant bite out of your profits, so it’s important to compare expenses when researching ETFs (and mutual funds).
Do ETFs Pay Dividends?
Some ETFs do pay shareholders distributions in the form of dividends. There are two types of dividends issued to ETF investors:
- Qualified dividends: These dividends are taxed at the capital gains rate, which depends on your modified adjusted gross income and taxable income rate (0%, 15%, or 20%). These dividends are paid on stocks the ETF held for at least 60 days during the 121-day period beginning 60 days before the ex-dividend date. To receive the dividend, you must own shares of the dividend-paying ETF for at least 60 days during the 121-day period that begins 60 days before the ex-dividend date. That means investors who actively trade ETFs generally don’t receive any dividends.
- Non-qualified dividends: These dividends are taxed at ordinary income tax rates because they are not designated as qualified. Dividends may be nonqualified if the ETF held the dividend-paying stock for fewer than the required 60 days.
Are ETFs Safe?
In general, ETFs are considered low-risk investments because they are funds that track a basket of various market assets, which means broad diversification for your portfolio. ETFs can be less risky than individual stocks because they aren’t impacted by the performance of one company like a single blue-chip stock is. If one stock in the ETF doesn’t perform well, it won’t negatively impact the entire fund (provided it’s a well-balanced fund).
However, investors should understand that ETFs aren’t risk-free, and potential returns can be affected by things like market volatility and low liquidity. Also, not all ETFs are created equal. Index funds tend to be safe since they invest in the same securities as a given index and try to match the index’s returns each year. Leveraged ETFs, on the other hand, also track indexes, but they use large amounts of debt to try to generate larger returns than the index themselves. Leverage is considered a double-edged sword because it maximizes potential gains—and potential losses.
Why Invest in ETFs?
ETFs are great for young investors and recent grads because they offer an affordable way to build a diversified portfolio. With their low expense ratios, greater tax efficiency, and trading any time during market hours, they’re a good choice when compared to mutual funds. ETFs are simple to trade since the transactions take place like stocks on regulated exchanges. ETFs can be traded on margin, have no short-selling restrictions, and provide intraday trading opportunities and plenty of liquidity. A large percentage of ETFs are optionable as well, allowing traders to manage their portfolio risk using derivatives.
What to Consider When Choosing a Broker for ETFs
When choosing an ETF broker, look for the same features you would for any broker: a strong industry reputation, current compliant security standards, solid customer service, reasonable costs, robust trading tools, helpful educational content, and access to the markets you want to trade. It’s also helpful to choose a broker that has a robust ETF screener and ETF-specific research to help you find your next investment. Additionally, make sure you read the ETF’s prospectus to learn more about who manages the fund, the fund’s historical performance, the holdings included in the fund, and more.
Should You Buy Commission-Free ETFs?
Before making the decision to purchase ETFs, you should first determine your investing goals, your ideal asset allocation, and the types of ETFs you want to purchase. Then you can develop your investing budget to determine how much you have to invest, including the expenses associated with managing ETFs. Once all that groundwork is done, low-cost, commission-free ETFs become a very attractive tool because of their ability to deliver diversification through a single investment.
Commission-free means that whenever you buy or sell shares of an ETF, you don’t pay any trading fees. However, there are still other costs associated with commission-free ETFs such as the operating expense ratio (OER). The OER is the percentage taken from the fund annually to pay for the fund’s expenses. For example, if you have $5,000 in an ETF with a 0.3% OER, your expense is $15 a year. A good rule of thumb is to look for ETFs with an OER that doesn’t exceed 1%. Commission-free ETFs are also a good idea if you trade frequently and you want to save money on overall investing costs.
Methodology
Investopedia is dedicated to providing investors with unbiased, comprehensive reviews and ratings of online brokers. This year, we revamped the review process by conducting an extensive survey of customers that are actively looking to start trading and investing with an online broker. We then combined this invaluable information with our subject matter expertise to develop the framework for a quantitative ratings model that is at the core of how we compiled our list of the best online broker and trading platform companies.
This model weighs key factors like trading technology, range of offerings, mobile app usability, research amenities, educational content, portfolio analysis features, customer support, costs, account amenities, and overall trading experience according to their importance. Our team of researchers gathered 2425 data points and weighted 66 criteria based on data collected during extensive research for each of the 25 companies we reviewed.
Many of the brokers we reviewed also gave us live demonstrations of their platforms and services, either at their New York City offices or via video conferencing methods. Live brokerage accounts were also obtained for most of the platforms we reviewed, which our team of expert writers and editors used to perform hands-on testing in order to lend their qualitative point of view.
Read our full Methodology for reviewing online brokers.