How to Start an Online Broker Account

This is the second of a multi-part series on how to invest outside of a 401K. The whole idea for this series started when I was asking a group of about 30 co-workers if they invested outside of a 401K, and ZERO of them did.

I later asked readers why they had not got started investing outside of a 401k. The first part in the series dealt with the question of whether you should pay off debt or invest. This part will deal with how to actually start a discount online brokerage account.

When I polled readers, 18% said that the reason they have not invested is they didn’t know how to start an online broker account. Hopefully this post will do an adequate job in removing that barrier.

What is a Discount Online Broker?

A discount broker differs from a full-service broker in that YOU make the decision on what to invest in and actually execute the trade on your own. That may sound scary at first, but it’s really not so bad.

There are plenty of discount online brokers out there that have helped drive the cost of trading for amateur investors down significantly over the years. A discount online broker is really all you need. Full-service brokers charge exorbitant fees and don’t necessarily have your best interests in mind.

online broker

What Can you do Through an Online Broker?

There is a pretty long list of things that you can do through a discount broker, including:

  • Putting your money into a money market account. If you leave your cash sitting, most will offer a nominal savings rate, much like a bank.
  • Investing in a CD.
  • Buying and selling stocks.
  • Buying and selling stock options.
  • Buying and selling index funds and other mutual funds.
  • Buying and selling bonds.

And it’s relatively cheap to do all of them. Stock trades at most discount brokers are $7 or less and many offer no-transaction fee mutual funds, index funds, and ETF’s (more on what each of these is down the road…).

To put it simply: an online broker is a one-stop shop for you to invest your money in just about anything.

The Best Online Brokers: A Comparison

To get started, you need to pick a broker. There are a lot of good ones out there. Most offer relatively cheap trades. Some charge annual fees. Others have high minimum opening contributions. Some have better customer service and trading tools than others. Depending on your situation, the best discount broker for you might vary.

I generally look for accounts that don’t charge BS maintenance or inactivity fees or annual fees. I also look for low costs to trade stocks and funds and an easy to use interface. Here are a few of my favorites (none of these have inactivity or maintenance fees, and only 2 have annual fees):

Ally Invest:

allyI have both a Roth IRA and a Traditional IRA with Ally Invest. Ally Invest does not charge fees on their IRA’s and stock trades are only $4.95 each. Check out my Ally Invest review for a full run-down.

  • Stocks: $4.95/trade
  • Mutual Funds: $9.95/open/close
  • Minimum Opening Deposit: $0
  • Annual & Inactivity Fees: $0 for IRA’s, $0 for non-retirement accounts, $0 inactivity fee
  • Promotion: Reimbursement of up to $150 in transfer fees.


vanguard brokerMy 401K is housed with Vanguard. What I really like about them is they have an extensive list of very cheap index funds and ETF’s under their brand and they don’t charge you for trading in and out of them. If you want to invest in their index funds and ETF’s and have a large enough balance to avoid the $20 annual fee, then Vanguard is a great choice.

  • Stocks: $7/trade (lower on higher value accounts), branded ETF’s & index funds are free
  • Mutual Funds: $35, but account tier could make it lower (if you go with Vanguard, just invest in their funds for free as they have the best index funds and ETF’s out there)
  • Minimum Opening Deposit: $0
  • Annual & Inactivity Fees: Vanguard charges a $20 account fee on IRA’s and other accounts if you have less than $10,000 in assets. If you have more or elect to receive electronic statements, there are no fees. There are also $0 inactivity fees.


In August of 2018, Fidelity launched 2 zero-cost index funds and slashed fees in order to (at least temporarily) beat Vanguard and Schwab on pricing.

  • fidelityStocks: $4.95/trade, branded ETF’s & index funds are free
  • Mutual Funds: $0 for Fidelity branded
  • Minimum Opening Deposit: $0
  • Annual & Inactivity Fees:$0


schwab online brokerMuch like Vanguard, Schwab carries a number of low cost branded ETF’s that they don’t charge you to trade in and out of. Their trading prices are otherwise the highest of the group, at $8.95 each and $76 to open buy mutual funds that are not their brand. Don’t go with Schwab unless you intend in investing in their funds for ETF’s.

  • Stocks: $0 trades (Schwab now offers free stock, ETF, & options trades to all accounts).
  • Mutual Funds: up to $76/open (excluding Schwab funds, which are free)
  • Minimum Opening Deposit: $0
  • Annual & Inactivity Fees: $0 for IRA’s, $0 for non-retirement accounts, $0 inactivity fee

How to Start an Online Broker Account

Now that you’ve picked out a broker, you’re probably wondering what steps you need to take to actually open an account. Check out the minimum opening deposits required, which I listed in the previous section. Note that buying into a mutual fund is usually more prohibitive than actually opening your broker account. Many mutual funds require you to have an opening investment of $1,000 to $2,500. Stocks and ETF’s don’t have these requirements.

Once you have that sorted out, the steps are generally as follows:

  1. Create a login and password.
  2. Choose the type of account you want. For most of you, it will be an individual investment account (non-retirement), a traditional IRA, or a Roth IRA. You’ll then be asked whether this is a cash or margin account. Since trading on margin is risky, you’ll want to select ‘cash’ 99.99% of the time.
  3. You’ll then have to fill out a ton of personal information about yourself including marital and income status, your social security, previous investing history, etc. This information is required by federal law when you start a new broker account, so everyone has to do it, despite how invasive it may seem.
  4. You’ll have to fund your account. Most online brokers allow you to do this in a few different ways: via ACH withdrawal from a bank account (usually free to do), via a wire transfer (your bank usually charges for this), via a transfer from another broker, or via check. Note that most, if not all, brokers accept cash or other form of payment.
  5. After you fund your account, there is usually a clearing period of up to a week for a background check and for the funds to clear.
  6. That’s it. As soon as your funds are cleared, you’re ready to invest!

Estimated time to complete the application and open an online broker account is usually under 15 minutes. It’s relatively straight forward. The hard part is waiting to invest your funds until they have cleared.

Now What?

You’re probably wondering what to do now. I will go through investing basics in upcoming posts, but I can only take you so far and can’t give specific investment recommendations. Start becoming obsessed with learning how to invest. In the meantime, move your funds to a money market account that will earn you a little bit of interest while you figure out what to invest in.

One step at a time. Open your online broker account first!

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