Understanding Broker Transaction Fees

February 28, 2012

costs-calculatorMost brokers have some mutual funds that are available without transaction fees (NTF) and other mutual funds that are available for a fee. Transaction fees seem straightforward, but brokers don’t all apply transaction fees in the same way.

At most brokers, you’re charged a transaction fee on each time you trade a fee fund: buying a fund, for example, is considered one transaction and selling a fund is another transaction. As Vanguard put it, “Fees apply per trade—purchases, sales or exchanges.”

But Fidelity and Schwab are two notable exceptions: at both brokers, you’re only charged a transaction fee when you buy a fee-fund; you don’t pay a fee to sell a fund.

It’s important to know up front how much your broker charges for transaction fee funds, and how your broker charges transaction fees because the numbers alone don’t always tell the whole story.

If you look only at the amount of a transaction fee on the table below, Schwab would seem to be the most expensive at $76. But because Schwab only charges investors a transaction fee when they buy a fee-fund, it’s actually cheaper ‘round-trip’ than TD Ameritrade.

TD Ameritrade charges roughly $50 for transaction fee funds and because it charges investors on both the buy and the sell, the ‘round-trip’ cost of buying and selling a fee fund is nearly $100.

The table below shows how much transaction fees cost at each broker, whether the broker charges the fee on both buys and sells, and total, or round-trip, cost of buying and selling a transaction fee-fund.

brokertransactionfee2016

Note: Vanguard’s transaction fee is different for Voyager and Flagship members.

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Ken Cohen March 22, 2012 at 9:12 pm

I do not believe that you have Fidelity’s fees correct. It should be $75 on both buy and sell. I sold several mutual funds based on the March 1st newsletter, and was charged $75 on the sell transactions.

noloadfundx March 23, 2012 at 11:09 am

We called Fidelity to check before posting this and a rep confirmed that the transaction fee is only charged when you buy a transaction fee fund. Is it possible that the $75 fee you’ve been charged on the sell was a redemption fee?

B Bailey March 27, 2012 at 5:12 pm

I think the round trip price for Scottrade has a bit of error. Two times seventeen is 34, not 36. I’ve never been charged more than $17 for a transaction.

noloadfundx March 28, 2012 at 9:26 am

Thanks for letting us know. We’ve updated the post.

Ken Cohen March 27, 2012 at 5:40 pm

I called Fidelity with specific examples. What I found out was that the $75 charges on “sells” were because I held the mutual funds less than 60 days.

Ken Cohen March 27, 2012 at 5:44 pm

Clarification. What I should have said was “the $75 charges on sells were from Fidelity and because I held the mutual fund less than 60 days”

Ken Cohen March 27, 2012 at 5:54 pm

That $75 fee imposed by Fidelity, that I just mentioned is called a “Short Term Trading Fee” by Fidelity, and is imposed where the mutual fund is held less than 60 days.

Tom April 19, 2012 at 4:30 am

So if I am charged a transaction fee because I didn’t buy a NTF mutual fund in my IRA, does the money to pay for the transaction comes from my CASH account (i.e. Cash Reserves in Fidelity), or do I get sent a bill and pay with money from outside my IRA?

noloadfundx April 20, 2012 at 11:32 am

A transaction fee is paid from the cash in your account. You won’t be sent a bill.

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