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Online broker review: TD Ameritrade

Over the past 40 years, TD Ameritrade has evolved through a series of mergers and acquisitions to become a giant in the online brokerage business. Along the way, it helped pioneer some defining characteristics of the brokerage industry that consumers take for granted today, such as, discounted commissions and online trading.

Of course, the brokerage industry has always been highly competitive. And, just like any other brokerage, TD Ameritrade must compete for your business. It's up to you to decide how well TD Ameritrade has tailored its services to fit your needs.

Who is a good fit for TD Ameritrade?

In a recent MoneyRates.com study of online brokerage firms, TD Ameritrade ranked a little below median overall. However, it did stand out for a couple of areas of strength: compatibility for small investors and the quality of its research resources.

MoneyRates.com considered three things in evaluating how welcoming online brokers were to smaller customers: commission rates, monthly fees for account maintenance or inactivity, and Minimum account size.

  1. Commissions: TD Ameritrade's commissions are a little above average, at $6.95 per trade compared to an average of $6.05 among the firms studied.
  2. Monthly account maintenance fees: TD Ameritrade does not charge monthly maintenance or inactivity fees, which is a great benefit to smaller investors.
  3. Minimum account size: Another benefit to smaller investors is the fact that TD Ameritrade does not have a minimum account size.

The slightly higher commission schedule at TD Ameritrade might be explained by the fact that they offer a fairly strong range of research resources. MoneyRates.com looked at a variety of independent ratings of the research offerings of online brokerage firms. TD Ameritrade came out in in the top half of the pack, with an average research rating that ranked 6th out of the 19 firms studied.

Remember, different brokerage firms have different business models. Those that compete primarily on price often do so by offering relatively little in the way of research resources. In contrast, TD Ameritrade may be a good fit for investors who are willing to pay a little more in exchange for access to more quality resources.

Other considerations

Investors considering TD Ameritrade should be aware of a couple other factors, including their regulatory disclosure history. Between regulatory incidents and arbitration cases, TD Ameritrade averages 5.95 disclosable events per year, a little higher than the average of 3.96 among all the firms studied.

Also, if you make regular use of margin, you should take note of the fact that TD Ameritrade's margin interest rate was among the highest in the MoneyRates.com study. For a $25,000 margin balance, TD Ameritrade's interest rate of 8.75 percent was well above the average of 7.52 percent, and was tied for the second highest overall. Margin interest rates vary over time and according to the size of the margin balance, so margin investors should be sure to compare the exact rates that would apply to them before choosing an online broker.

Like most firms, TD Ameritrade has its strengths and weaknesses. Investors who are researching online brokers need to know not just about the different firms available, but also about their own needs and habits. In the case of TD Ameritrade or any other online brokerage firm, how the customer uses their services goes a long way toward determining whether it is the strengths or weaknesses of the firm that come to the fore.

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