Scottrade Review

Recently I wrote about the best place to open an IRA; I recommended Vanguard for buy-and-hold investors and TradeKing for investors who want to do more active trading.

Although I think many new investors will be well-served by TradeKing, in recent conversations with some investing friends, I’ve come to realize that Scottrade deserves your consideration and decided to provide a Scottrade review.

Founded in 1980, Scottrade was one of the original “discount” stock brokers (meaning they charge less per-trade than traditional stockbrokers, but also that they cannot provide investing advice like a full-service broker).

Scottrade’s claim-to-fame is their $7 unlimited trades. But what I think really distinguishes Scottrade from the many other discount broker options is their large network of physical branch offices across the United States. So you get “online-only” pricing with the service of a local branch office.

THE BASICS

Like all good brokers, Scottrade offers an intuitive Website and online trades for just $7. Alternately, you can make automated telephone trades for $17 each or get help from a broker, in which case each trade will set you back $27. Advanced traders with at least $25,000 in their accounts can access ScottradeELITE, featuring advanced data and tools. Finally, options trades cost $7 plus $1.25 for each contract.

PROS

Here’s what’s great about Scottrade:

• Branch Access: Perhaps the best thing about Scottrade is that you can visit one of their 467 branches across the United States while still enjoying “online-only” pricing. In addition, Scottrade continually receives high marks from J.D. Power & Associates and others for their excellent in-person and telephone customer service.
• Free Real-Time Quotes: Most brokers charge you extra to get real-time pricing; not Scottrade.
• The Prices: Although not the absolute cheapest, Scottrade’s $7 trades are pretty close. Plus, Scottrade has no account maintenance, inactivity, or account closing fees (yes, many brokers charge you to close an account!)
• Mutual Fund Choices: Scottrade offers an impressive number of investment options from stocks to bonds to ETFs, but they really shine when it comes to mutual funds. With Scottrade you can access over 15,000 funds, more than on Fidelity, TDAmeritrade or E*Trade. (Granted, more isn’t always better, but sometimes it’s nice to have a lot of choices).
• 15 Commission-Free, Very Low-Cost ETFs: Scottrade recently introduced 15 free ETFs that all have extremely low expense ratios (one of the key factors I recommend you take into account when investing).
• Low Opening Deposit: All you need to open an account is $500 ($2,000 for a margin account).

CONS

• No Electronic Withdrawals: Although you can fund Scottrade accounts by electronic transfer from your checking account, if you want to withdraw money, you’ll have to wait for a check. Bummer.
• Not the Cheapest: It’s hard to have a beef with Scottrade’s $7 fees, but if it’s purely low-cost trades you’re after, Zecco and TradeKing may be cheaper.
• No Stock Dividend Re-investments: Ideally, when you earn dividends from an investment, you should reinvest them (reinvested dividends are like giving your compounding returns a shot of adrenaline). A very few brokers will do this for you automatically at no charge, but like most, Scottrade distributes your dividends as cash, meaning you’ll need to pay another trade commission to buy more shares with your dividends. (Note that this applies to stocks only—Scottrade does provide free dividend reinvestments on mutual funds.)

In sum, Scottrade is a great choice for investors who want a balance of service and competitive pricing. Scottrade isn’t as cheap as some other online brokers, but provides the peace of mind that there’s a branch filled with real-live people not too far away.

Learn more about Scottrade or open an account now