Top 4 Free commission ETF providers Vanguard vs Fidelity vs Charles Schwab vs TD Ameritrade

Intro

More brokerages and Exchange Traded Fund (ETF) providers have provided free commission ETFs trading option since the ETF sector is growing faster than mutual funds. There are currently 4 brokerages which offer Free ETF trades such as Schwab, Fidelity, TD Ameritrade and Vanguard. Most of these brokerages have different set of rules and ETF offering. Some providers maybe lacking certain features and have other restrictions for this free ETF trading or investing. The price war among these brokerages has also sent the expense ratio to as low as 0.06%, most investors should be happy to see this low expense ratio compare to average of 1.5% expense ratio annually to any active top mutual funds.

Introduction to ETF

In my previous article about how to diversify using ETF, I have explained any investor can choose various family ETFs to diversify their investment portfolio. As you know ETFs can be classified into Bond ETF and Stock ETFs which are very similar to mutual funds. According to recent Bloomberg article, more money is being injected into ETFs than mutual funds due to their liquidity option (easily to buy ETF or sell ETF) and transparency. Most of these ETFs are Passive Type ETFs track various indexes such as Nasdaq, S&P 500, Russell, and MSCI.

  • Fixed income / Bond: Short term bond, Intermediate term bond, Long Term Bond, Investment Grade Corporate Bond, High Yield Corporate bond (Non Investment Grade corporate bond), Treasury Inflation Protected (TIP) Bond, Tax Free Muni Bond ETF.
  • Equity / Stock: Large Cap, Mid Cap, Small Cap, REIT (Real Estate Investment Trust), Emerging Market, International Foreign Large Cap, Foreign Small Cap.
  • Commodity: gold, silver, palladium, copper, sugar, cotton more
  • Country Specific or Regional countries Specific ETF such as Brazil, China, Malaysia, Singapore

This commission-free ETF trading is a relatively new model, several of the biggest brokerages such as TD Ameritrade, Charles Schwab, Vanguard, and Fidelity, have begun to offer these programs to their customer / investor. There are many differences among these programs and there are several advantages and limitations for investors each. I’ll provide several key differences between the four major free ETF trading systems available to investors or traders currently. The following is Top 4 Free Commission ETF providers:

Note: If you are interesting to know about Top 10 Popular ETF, please check my article.

Fidelity

Fidelity Investments is one of financial service provider that offers to buy stock online with various trading platforms for its investors. One of the reasons to use Fidelity is due to their offering of 25 ishares ETFs for free since February 2010. Most ETFs are tracking certain market index such as S&P 500, International, fixed income (bond) and many more. For example S&P 500 ETF with ticker IVV, this etf is tracking the S&P 500 index. This IVV ETF only has 0.09% expense ratio. There is no limit to buy and sell of these ETFs. I provide the following table for detail comparison. Note: Only buy and sell ETF is free. Option is not free. Investor or trader can also trade stock for $7.95 per trade. To open an account, you need $2,500.

While the choice is limited, the 25 ishares ETF offered by Fidelity do provide a diversification tool for ETF portfolio. The ETFs offering do lacking the commodity products ETF such as gold, silver ETF. There is also no country-specific equity ETF such as China and Brazil countries ETFs. In the fixed income space, there is no High Yield Corporate Bond ETF.

Vanguard

Known for its low cost mutual funds, Vanguard began offering their ETFs for free this May 2010. There are currently 62 free ETFs for trading. Most these ETFs can be traded in Vanguard Brokerage Services (VBS) account which is separate from main Vanguard account. Depending on account balance, investor can trade other ETFs or Stock for $2.00-$7.00 per trade up to 25 trades per years. Otherwise, the trading cost is $20 per trade. To open a VBS account, there is no minimum account balance; however you need $3,000 for funding your Vanguard account initially.

Vanguard breakdown their ETFs as follows:

  • Large cap Stock ETFs: Total Stock Market (VTI), Mega Cap 300 (MGC), Mega Cap 300 Growth (MGK), Mega Cap 300 Value (MGV), Large-Cap (VV), Growth (VUG), Value (VTV)
  • Mid Cap Stock ETFS: Extended Market (VXF), Mid Cap (VO), Mid Cap Growth (VOT), and Mid Cap Value (VOE)
  • Small Cap Stock ETFs: Small Cap (VB), Small Cap Growth (VBK), Small Cap Value (VBR)
  • Specialty ETFs: Dividend Appreciation (VIG), High Dividend Yield (VYM)
  • Sector ETFs: Consumer Discretionary (VCR), Consumer Staples (VDC), Energy (VDE), Financials (VFH), Health Care (VHT), Industrials (VIS), Information Technology (VGT), Materials (VAW), REIT (VNQ), Telecommunication Services (VOX), Utilities (VPU)
  • International ETFs: Total World Stock (VT), FTSE All-World ex-US (VEU), Emerging Markets (VWO)
  • Bond ETFs: Total Bond Market (BND), Short-Term Bond (BSV), Intermediate-Term Bond (BIV), Mortgage-Backed Securities (VMBS)

Vanguard is probably best known for its ultra-cheap Emerging Markets ETF (VWO) with 0.27% expense ratio and its Total Stock Market ETF (VTI) with 0.07%. Both of these ETfs also has the largest asset in Vanguard ETF offering. Vanguard also offers investors access to variety of government and corporate bond funds including an Extended Duration Treasury Index Fund (EDV) and even a Mortgage Backed Security (VMBS) option as well. This Vanguard’s ETF listings can be model for a long-term portfolio, including a number of U.S. and international equity options, as well as various broad-based and targeted bond terms.

Currently, Vanguard’s ETF lineup doesn’t offer any commodities, country specific, international bonds, as well as municipal bond ETFs. However, Vanguard offers perhaps the most comprehensive free-ETF trading platform and considering that the average expense ratio is range from 0.06%-0.40%, these vanguard ETFs do provide investors low cost and variety choice of ETFs.

Charles Schwab

Charles Schwab is one of online brokerage site which offers financial service as well as a trading platform to buy online stock for its investors. Schwab first launch its ETF offering late last year 2009. The brokerage made trading of its ETFs commission-free for Schwab branded ETFs similar to Vanguard ETFs. Schwab currently offers investors or traders a diversified mix of its 11 branded ETFs available to its investors free from commissions. The company’s lineup includes several bonds ETF, international equity and domestic equity ETFs, all of which have expense ratios less than 0.35% and has an average of just 0.15% expense ratio. These low cost options also include a short and intermediate Treasury funds, as well as a TIPS product in the bond space. Wihle the option is limitied, Schwab’s ETF lineup focuses on portfolio building blocks and variety to diversify.

Because Schwab is still building out its ETF lineup, the commission-free offerings are somewhat limited. While the equity offering cover all the bases, Schwab doesn’t yet offer a total bond market ETF similar to ishares or Vanguard total bond. ETFs. There is currently no ETF offering such as municipal bonds, junk bonds (high yield bond), or investment grade corporate bond ETF. Investors looking for commodity exposure won’t find it from Schwab. That could all change in coming months, as the Schwab has plans to continue beefing up its ETF lineup.

Schwab also offers $8.95 per trade for trading stock or other ETFs. To open an account, you need $1,000.


TD Ameritrade

TD Ameritrade is one of online financial brokerage service provider with an abundant online stock trading platform for its investors as well as traders. Recently, TD Ameritrade has started offering 100+ commission-free ETFs when the ETF is held for 30 days. The ETFs are selected by Morningstar in its ETF Market Center. Compare to other brokerages (Vanguard, Fidelity and Charles Schwab), TD Ameritrade offering is definitely more. The 30 days holding period is definitely a negative compare to other ETF provider. However, If you are a long term investor, this shouldn’t be a problem. Please note, if you don’t hold the ETF for 30 days, you will pay $9.99 commission per trade.

The current ETFs offering include:

  • 31 Equity ETFs:
  • 3 REIT Sector ETFs
  • 32 Bond ETFs
  • 31 International ETFs
  • 4 Commodity ETFs

TD Ameritrade ETFs offering doesn’t restrict to only single ETF issuer. It provides ETF by Vanguard ETFs, ishares ETFs, SPDR ETFs, Powershares ETF, WisdomTree ETFs and more. One of the disadvantages is it doesn’t include several big asset popular ETF such as SPY, EEM.

TD Ameritrade also offers $9.99 per trade for trading stock or other ETFs. To open an account, you need $0.00 for cash account and $2,000 for margin account.

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Comments 3 comments

Availiasvision profile image

Availiasvision 4 years ago from California

Thank you for laying out these companies offerings in a very easy to understand way.

I have a question about fidelity's commission free etf's. I've tried reading the fine print and have not found my answer. Are there any cash account restrictions to swing trading them? Other companies charge a fee if the etf isn't held for 30 days. Does Fidelity do the same thing? Are there any minimum amounts of shares or a mazimum number of times I can trade an etf a year? I basically want a platform to swing trade without any fees. I had that with the Focus shares from Scottrade, but they are canceling the program this month.

Thank you so much for your time!


chan0512 profile image

chan0512 4 years ago from Camarillo, CA Author

Availiasvision,

As far as I know, there are none. However, I found this

"All iShares ETFs are not margin eligible for 30-days from settlement, similar to mutual funds."

My understanding is you can't buy and sell more than your cash position. Please check with Fidelity for details though.


Availiasvision profile image

Availiasvision 4 years ago from California

Thanks for the reply. I'm not trading on margin so I think all will be well.

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