Beware of hidden fees online brokerages charge

ByABC News
August 28, 2012, 7:11 PM

— -- Q: What are some of the most bogus fees online brokerages charge?

A: Investors head toward low trading commissions like moths to light. But investors are often blind to the fact many online brokers are still charging ridiculous and often hidden fees that can add up fast.

Brokers have gotten smart about promoting the commission, which at most firms is $10 or less, but tucking away the other fees from sight. And these other fees can be much higher than commissions and harder to find out about before you open an account.

Below are some of the types of fees that brokerages charge that you should be aware of and strongly consider before opening an account, including:

•ACAT fees. ACAT fees, or account transfer fees, are particularly irksome. These are fees most brokerages charge you if you move your brokerage account to another firm. These fees range greatly, but are usually anywhere between $50 and $100.

ACAT fees in this day and age of electronic transfers are little more than financial roach motels. Brokers use them to punish customers for moving their money and hold them captive. Additionally, brokers do their best to hide these fees on their Web sites, usually under the "other fees" heading. Brokers that rely on ACAT fees to retain customers would be better served providing compelling value instead, so customers wouldn't want to leave.

There are several ways to fight ACAT fees. One thing you can do is think twice before opening accounts with brokers that charge them. Neither Scottrade nor Vanguard Brokerage Services, for instance, charge transfer fees. TD Ameritrade will do a partial transfer of your account for free, which is reasonable. TD Ameritrade, though, charges standard customers $75 for a full account transfer.

You can also avoid ACAT fees by being strategic. If you only have a few stocks in your portfolio, and have losses in them, you can sell them. Once you're in cash, you can transfer the cash, for free, to a savings account electronically. Next, you can set up the new brokerage account and transfer the cash in. You can then buy the stock back at the new brokerage, as long as you wait more than 30 days after you sold. If you have stocks with unrealized capital gains, this strategy might not make sense in light of the tax ramifications. Also, if you have many stocks to buy and sell, it might have been less costly just to pay the ACAT fee.

Hopefully more brokers will move to eliminate ACAT fees, and instead use service and quality to retain customers.

•Account maintenance or inactivity fees. There are some brokerages that charge you literally for nothing. Most of these fees are designed to discourage investors from maintaining small accounts for a long time. The best way to avoid these fees is to stay above the minimum deposit thresholds. Vanguard, for instance, charges $20 a year unless you have $50,000 or more in all your Vanguard accounts. Tradeking socks you with a $50 annual change unless you have $2,500 in your account or trade at least once a year.

To avoid this fee make absolutely sure you meet the trading or balance requirement of the brokerage. If you can't meet the requirement, move your money. You should never pay account maintenance or inactivity fees in this day and age.