How would you like $5,000 (or more) just for opening a brokerage account? That's just one of the best broker incentives up for grabs from online brokerages trying to lure you as a customer.
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Competition is so fierce among online brokers, many are willing to pay you just to open an account or add money to an account you already have. And some of the bonuses are temptingly large.
"In the battle for investor dollars, promotional offers have become an important factor for self-directed individuals opening new accounts," said Kapil Vora, senior director of wealth intelligence at J.D. Power.
Incentives, discounts and pricing are among the attributes online brokerage customers value the most in Investor's Business Daily's 2024 Best Online Brokers survey.
At the top of this year's list of the Best Online Brokers are Ally Invest, part of Ally Financial (ALLY); Fidelity Investments; Charles Schwab (SCHW); and Merrill Edge. Merrill is a part of Bank of America (BAC).
Looking At Some Of The Offers
These best broker incentives are more than just the modern day equivalent of a toaster for opening a savings account. These perks matter to investors — and can be sizable.
"One in six new online brokerage customers cited promotional offers as the primary reason behind their (brokerage) firm choice in our latest data," said J.D. Power's Vora.
Between 17% and 20% of new account holders in 2023 said incentives played a big part in their brokerage decision, Vora said. That's up dramatically from the 8% to 10% in 2021 who cited promotions for driving the choice of broker.
Charles Schwab and E-Trade know this. And they're duking it out with big standing incentives.
Schwab, a perennial top performer in Investor's Business Daily's Best Online Brokers survey, is looking to win over new customers as it absorbs TD Ameritrade, which it bought in 2020.
Read The Full Special Report On IBD's Best Online Brokers List for 2024
You'll score a solid $1,000 bonus if you open an account and fund it with $500,000 or more. Don't have that much money you're willing to move? Schwab will pay you $100 for opening an account with $25,000. And it'll pay $300 to $500 for new accounts with $50,000 to $100,000.
Not to be outdone, E-Trade, now owned by Morgan Stanley (MS), is offering similar incentives. It too pays $1,000 for a $500,000 account. And it's willing to pay you $600 for a new account with $200,000 to $499,999. Other bonuses range from $100 to $300 for smaller amounts.
Can Robinhood Steal Customers With $5,000 Or More?
Want more of the broker incentives? Taking its role as industry disrupter to the incentives realm, Robinhood (HOOD) is now paying even more than the big boys for incentives.
Until Jan. 31, Robinhood will pay you a 1% bonus on the amount of money you transfer to the online broker. That's a $5,000 bonus on a transfer of $500,000, or five times more than Schwab and E-Trade are paying. Robinhood will also pay 1% on smaller deposits. New clients also get money to buy a piece of stock in one of 20 top companies of their choice. The value of the reward ranges from $5 to $200, with 98% of people getting $10 or less.
To compete for newer investors, Schwab offers a Starter Kit. If you fund the account with at least $50, you get $101 in shares in the five most valuable stocks in the S&P 500.
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Other Broker Incentives: Gifts Of Stock
Some online brokerages are using free stock as the carrot.
Open a new account at SoFi Invest, and you'll get some free stock to put into your account. This is something other brokerages including Robinhood have done. At SoFi, the amount of stock you get varies. You have a 0.028% chance of getting stock valued at $1,000. Most people get around $10.
WeBull also gives stock for new accounts, but with more variables. Open an account with $500 to $24,999 and you get 30 fractional shares of stock valued from $3 to $3,000. Plus, the online brokerage will throw in six months of free Level 2 market information. Put in $25,000 or more and get 75 free fractional shares.
Instead of stock, Ally Invest will pay $100 to Ally Bank (ALLY) customers who open a brokerage account. They need to make recurring deposit transfers of $50 forthree straight months.
Ally Invest scored highest in overall customer experience in IBD's 12th annual Best Online Brokers survey.
Things To Watch Out For In Broker Incentives
Beware, though. These offers might not be as good as they look. Costs for switching might erode your gains.
For one, most brokerages charge fees if you transfer money out. You'll want to know about those fees before you move. Some brokers such as Ally Invest and Robinhood will reimburse you up to $75 for those fees if you move money into an account with them.
Additionally, you could trigger a taxable gain if you sell winning stocks before transferring them to another brokerage in a taxable account. Also, if you move $500,000 out of a savings account paying 4% to get a $1,000 bonus, you could have gotten $20,000 a year in interest instead.
Lastly, don't assume all brokers will pay you an incentive. Some don't. Interactive Brokers (IBKR), for instance, has "no publicly available offers at this time," said spokeswoman Katherine Ewert.
Only you can judge if the pain of switching is worth it.
"The online brokerage landscape is highly competitive," said J.D. Power's Vora. "Firms are increasingly struggling to differentiate from competitors, with each having relative strengths and deficiencies. But when taken in aggregate, there is a lack of significant differences in overall perceptions."
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As someone deeply immersed in the world of online brokerage and financial markets, I can attest to the significant role that broker incentives play in attracting and retaining customers. The article touches upon a crucial aspect of the industry, emphasizing the fierce competition among online brokers to entice investors with lucrative offers.
Firstly, the mention of Kapil Vora, the senior director of wealth intelligence at J.D. Power, adds credibility to the discussion. Vora highlights the increasing importance of promotional offers in the decision-making process for self-directed individuals. This aligns with my knowledge that investors are becoming more discerning, considering not just the services offered but also the incentives provided by brokerage firms.
The article introduces the top online brokers for 2024, including Ally Invest, Fidelity Investments, Charles Schwab, and Merrill Edge. This resonates with my understanding that these firms are recognized for their overall performance and customer satisfaction. These names are not arbitrary; they are leaders in the industry.
The detailed breakdown of incentives offered by Charles Schwab and E-Trade further solidifies the narrative. Schwab's bonuses for various account funding levels and E-Trade's similar offerings demonstrate the competitive landscape, with these well-established players vying for a larger market share. The mention of the acquisition of TD Ameritrade by Schwab reinforces the dynamic nature of the industry.
The article also introduces Robinhood as a disruptor, offering even more substantial bonuses than traditional brokers. The time-limited 1% bonus on transferred funds and additional incentives, such as stock rewards for new clients, showcase Robinhood's innovative approach to attract investors.
Moreover, the article touches on other broker incentives, such as free stocks offered by SoFi Invest and WeBull. This aligns with my knowledge that brokerage firms are diversifying their incentives beyond cash bonuses, using stocks as attractive perks.
The article provides a balanced perspective by cautioning investors about potential drawbacks. It rightly points out the fees associated with transferring funds and the possibility of incurring taxable gains when switching brokers. This reflects the need for investors to carefully evaluate the overall impact of these incentives on their financial portfolios.
In conclusion, the article provides a comprehensive overview of the current landscape of broker incentives, showcasing the strategies employed by major players and the evolving nature of competition in the online brokerage industry.
