Comparison Shop Before Choosing Ameritrade
Written: Feb 11 '06
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Pros: Easy to contact customer service.
Cons: High overall cost to the customer.
The Bottom Line: Ameritrade can be very costly when all factors are considered. I would not recommend them since there are better options available.
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| CashewAndFilbert's Full Review: Ameritrade |
It's all about cost vs. benefit. Cost is monetary cost and benefit is how the service helps you to achieve your goals. I've had people disagree, but I strongly feel that returns should be the number one goal in having an brokerage account. Non-competitive rates and fees work against any returns an investor might realize. Service comes in second. Regarding E-pinions, E-pinions is a great site but, once again, I'm going to reprimand them in this review for only including ratings for brokerages like "Customer Service", "Website Experience", and "Website load time" and not anything related to costs or fees. I'm certainly not the only one who believes costs are important. Certainly anyone who has a brokerage account believes money is at least somewhat important.
Getting the service aspects out of the way, Ameritrade's customer service seems adequate - they've always answered the phone when I called. Website - from a message board I often hear people complain about the 'streamer', a tool which lets an investor monitor their positions, but I haven't experienced this problem. I've had significant problems logging on in the past but otherwise I don't have complaints. The load time isn't the fastest, but it's adequate also. I'm usually not in any hurry. I'll rate Ameritrade average on these aspects but overall, I'm going to give Ameritrade a low rating because of the costs.
Costs:
Margin rate interest: Standard and Poors recently indicated that Ameritrade's margin rates are among the highest in the industry. At the current maximum rate of 9.75%, that certainly seems to be true. 9.75% is charged for margin debit balances under $25,000. Above that amount the rate drops somewhat, but still remains extremely high. For comparison, a decent number of other brokerages charge around 7% and one I found charges around 6%. Either way, 9.75% for any type of loan collateralized by securities is very high. A good portion of this rate increase occurred within the last year at Ameritrade.
Interest paid on customer's cash balances: This is significantly less than 1% and, by the company's own admission in their third quarter investor conference call, increases in interest rates paid on cash balances have not kept pace with increases in the rates they charge for margin interest. The company further indicated they paid an average of 0.69% interest for cash. By comparison, money markets average around 2.90% and even checking accounts currently average 1.04% according to Bankrate.com. From my experience I saw significantly less than a 0.69% return in my account. The exact rate doesn't appear to be listed anywhere on Ameritrade's website.
Commissions: Depends on your perspective. A little over fifteen years ago I opened an account with Waterhouse Securities (before it was TD Waterhouse) when they advertised commissions of $35/trade. That commission rate was so low at the time that I even called the Better Business Bureau to make sure they were a legitimate company. Commission rates obviously dropped significantly over the years and I moved to Ameritrade when they offered $8/trade. Ameritrade has since increased their rates to $10.99 and kept that rate while many other brokerages are now charging significantly less. Commissions can now be found at flat rates of $5/trade. Keep in mind that the quality of a stock purchased doesn't increase with the amount of money spent on the commission.
Overall, customers should choose what makes sense for them but should keep in mind that if they are trying to make money, they should keep a lid on costs. With Ameritrade having well over a billion dollars in annual revenues and 1.77 million qualified accounts, it's not hard to see that even an average Ameritrade customer spends over five hundred dollars every year in fees and interest. Obviously if a person had to make a $500 purchase every year, they would probably comparison shop. They should do the same for their brokerage. Just because all of the costs aren't easy to see doesn't mean they aren't there.
Recommended:
No
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Epinions.com ID:
CashewAndFilbert
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Location: Rochester, MN
Reviews written: 9
Trusted by: 2 members
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