If you have mastered your personal finance and established some emergency savings, it is probably the time to start investing so that you can ease yourself in the future. In order to start an investment, you need to have a brokerage account. You can get this from a brokerage firm like Interactive Brokers and TD Ameritrade. These well-known brokerages both offer various features and benefits for individual investors. However, there are several big differences that set Interactive Brokers vs TD Ameritrade apart. Depending on your needs and goals, either Interactive Brokers or TD Ameritrade will be more suitable for you.
What is a Discount Broker?
We will start by comparing the commissions and costs of Interactive Brokers vs TD Ameritrade. Despite both being discount brokers, they use different approaches.But, before we continue, what is a discount broker?
A discount broker is a stockbroker who can carry out your buy/sell orders at a lower rate than a full-service broker, but without providing any investment advice. Such discount brokers have made stock trading more accessible to individuals with smaller capital. In normal operation, a discount broker simply performs your order without giving any advice, consultation, research, or planning – so, you may need to do these things yourself.
Interactive Brokers has a minimum of $1 for a trade. It charges $0.005 per share for stocks, $0.25 – $0.70 per contract for options. Interactive Brokers also has a minimum of $1 for ETFs and charges $0.005 per share. For mutual funds, the cost is $14.95 per purchase.
In addition, Interactive Brokers also charges a minimum fee of $10/month to clients who don’t generate more than $10 in trading commissions during that month. So, if you want to avoid this additional fee, you are encouraged to actively manage your investment by doing buy/sell orders to gain profits.
On the other hand, TD Ameritrade comes with a more straightforward pricing. It charges $9.99 per trade (regardless of the trade size) plus $0.75 per options contract. For ETFs, the cost is similar, which is a flat $9.99 per trade. For mutual funds, the cost is notably higher, $49.95 per purchase.
Hypothetically, TD Ameritrade can be cheaper than Interactive Brokers for handling large trades. For example, when buying 5,000 shares, TD Ameritrade will still cost $9.99 whereas Interactive Brokers will cost $25. However, buying such a lot of shares in one limit order is only possible on a very liquid stock. More often than not, buying it in several small limit orders is more profitable. So, don’t expect too much from TD Ameritrade’s flat fee.
Both Interactive Brokers vs TD Ameritrade do offer commission-free funds, but the selections differ greatly. If you are planning to use mutual funds or ETFs in your portfolio, you may need to make sure that your favorite funds are available in your broker’s commission-free (no-transaction-fee / NTF) list. It will help you avoid at least one expense that usually comes with an investment in mutual funds and ETFs.
TD Ameritrade is arguably better for people who want to invest in mutual funds or ETFs. This is because TD Ameritrade provides more selections in their NTF list. They have 101 commission-free ETFs from Vanguard, iShares, and VanEck, along with 3,984 mutual funds. You have a lot more choices here. Still, if you have particular preferences, you need to make sure that your preferred funds are there.
On the other hand, Interactive Brokers only has 64 commission-free ETFs from GlobalX and 2,912 mutual funds. As you can see, it provides fewer selections, but it is still a viable choice if your favorite funds are in the list.
Interactive Brokers’s clients can trade various domestic and foreign exchanges. It enables trading on more than 100 markets of 24 different countries. Hence, it is great for those who want to trade international stocks.
On the other hand, the clients of TD Ameritrade are able to buy and sell American Depository Receipts (ADRs), but they don’t have direct access to foreign stock markets. As a result, with TD Ameritrade, you will be limited to only foreign companies that are big enough to have ADRs on the American stock exchange.
However, note that both Interactive Brokers and TD Ameritrade have mutual funds and ETFs that hold foreign stocks. So, the difference in this aspect is less substantial for fund investors.
The minimum account sizes make one of the biggest differences between Interactive Brokers vs TD Ameritrade. In order to become an investor through Interactive Brokers, you need a standard minimum account of $10,000. It can be reduced to $5,000 for IRAs and to $3,000 for young investors under 25.
On the other hand, TD Ameritrade does not have minimum accounts. They allow you to start investing with as little as $1. Hence, this is a great place for people with smaller capital who want to start investing.
Research Tools and Mobile Apps
Although discount brokers offer fewer features than full-service brokers, many discount brokers have equipped themselves with excellent research tools for their clients. Both Interactive Brokers and TD Ameritrade enable you to access third-party insights from Morningstar and Thomson Reuters. They each also have proprietary market scanners and screeners to help you sort through stocks and funds based on several fundamental factors, such as earning results and historical returns.
Considering today’s mobile-centered lifestyle, it is also important to consider the quality of the mobile apps provided by these brokers. Both Interactive Brokers and TD Ameritrade have Android and iOS apps. However, Interactive Brokers’s iOS app has a considerably lower rating of 2.5 than TD Ameritrade’s 4.5. Their Android apps are more comparable, with Interactive Brokers’s being 4.0 and TD Ameritrade’s being 3.5.
|Interactive Brokers||TD Ameritrade|
|- $0.005/share, $0.25 – $0.70 per options contract, minimum trading fee of $10 per month||- Flat $9.99 per trade, $0.75 per options contract|
|- 64 commission-free ETFs from GlobalX and 2,912 mutual funds||- 101 commission-free ETFs (Vanguard, iShares, VanEck) and 3,984 mutual funds|
|- Direct access to more than 100 foreign markets of 24 different countries||- Limited to foreign companies that are big enough to have ADRs|
|- Standard minimum account of $10,000, reducible to $5,000 for IRAs and to $3,000 for young investors under 25||- Can start with as little as $1|
Each of these two discount brokers offers different pros and cons. TD Ameritrade is generally better for those who want to invest in mutual funds or ETFs due to the wider range of commission-free list. TD Ameritrade also makes a viable choice for a small budget because it does not have minimum accounts. The iOS is apparently better. On the other hand, Interactive Brokers is great for investing in stocks if you can get through the account minimums. The lower fees are more profitable.