Are You Using the Right Online Brokerage?

Ask yourself these questions to see if you're saving as much as possible.

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Investors these days are overwhelmed with options when it comes to picking the best online investing account. Should you go with the company offering a flashy sign-up bonus, the one with the cute ads on TV, or the deep discounter toting free trades?

Since most retail investors only have a couple of brokerage accounts where they manage their investments, it matters that you’ve picked the best online brokers for your needs so you can save money while optimizing for your stock trading needs down the line.

To help investors sort out the small print, let’s break down the most important steps you can take to determine if you’re using the right account for your needs. By asking yourself these three questions, you can determine if you’re using the best account possible to save yourself a lot of money and headache later on:

1. How many trades do I make a month (or year)? Take a look at your recent brokerage statements—the numbers might surprise you. If you trade more or less than you thought you did, or you’ve never paid much attention to your investing behavior, you’ll want to double-check how much you’re being charged each time you place an order to buy or sell.

If you are an active trader, you want an account that charges you as low a price per stock trade as possible. If you are an infrequent trader, you want to make sure you aren’t being charged any inactivity fees or other hidden charges for services you don’t use.

While over 17 million investors have accounts at the three largest online brokerages—Schwab, eTrade, and TD Ameritrade—their financial filings reveal their average customer executes less than two trades per month. For the majority of users, this means they could be saving money on unnecessary fees—to the tune of over $1.8 billion total per year—by investing elsewhere.

2. Am I aware of the hidden fees and costs? As with many financial decisions you make, the devil is in the details.

Although it’s important to have a sense of how much trading you actually do on a monthly and yearly basis, the price of a stock trade is by no means the only calculation that should go into your assessment of the best brokerage account.

Be sure to incorporate these additional criteria into your ultimate decision:

• What will the total monthly cost of this account be, based on my investing behavior?

• What is the minimum initial balance needed to open this account, and what will I need to maintain in it over time?

• Is there an ongoing sign-up promotion, and what will the prices become once this promotion ends?

• What other account fees are associated with this account?

If anything, by fixating solely on the per-trade price sticker, you might be missing hidden fees and costs that will pop up later.

3. Do I want extra goodies and fancy tools? Just like any bank or credit card company, online brokers attempt to set themselves apart from the crowd of competitors by offering unique features, promos, tools, and add-ons.

The real question is which of these extra investing tools will you actually need?

There’s no point in paying more for something—either in the upfront costs or for an additional charge—you’ll never actually use. Look carefully to see if you plan on using any of the following, then crosscheck your wish list with your online brokerage’s offerings to make sure you’re paying for what you’re getting, and no more:

• Real-time trades

• Automated orders by phone

24/7 customer service

• Research reports

• Data analysis software

• Physical locations

• Mobile access

• Debit card

The list goes on, but the evidence is clear: Most retail investors don’t use all of these features, so they shouldn’t be paying too much for them either.

The bottom line: If you find you could be saving money or getting better service elsewhere, you’d be better off transferring your funds.

Susan Lyon is a senior strategy analyst for NerdWallet Investing, a financial literacy website dedicated to empowering consumers to make better financial decisions in investing and money management.