Best brokers for funds in the US

To help you to find the best online broker for funds in 2020, we went ahead and did the research for you. First, we selected 67 quality online brokers, then we tested them with real accounts. We evaluated their selection of mutual funds, the fees they charge and much more. We went deep, so you won’t have to. 5 made it to the top in the US. We highly recommend all 5 to you. And now, without further ado...

Our top 5 picks for the best online brokers for funds in the US:

1. Firstrade is the winner. Free stock, ETF, fund, and options trading. Solid research tools. Quality educational tools.
2. Ally Invest in the second place. Low trading and non-trading fees. Easy and fully digital account opening. Great education.
3. E*TRADE rounded out the top three. Low trading fees (free stock and ETF trading). User-friendly mobile trading platform. Great research tools.
4. Vanguard, numero quatro. Some ETFs and mutual funds are free to trade. Easy account opening. Great mobile trading platform.
5. Interactive Brokers. Wide range of products. Many great research tools. Regulated by several authorities. Just made it to the list with being number five.

All 5 brokers are considered safe. They are regulated by at least one top-tier financial regulator.

What makes a good online broker for fund investing? First, they need to offer fair fees for buying and selling funds. Second, they should also offer access to a good selection of fund providers.. It’s also important that the inactivity fee shouldn’t be high and we also look at the broker’s overall score as well. Easy to list, but hard to figure it out. We are testing brokers along ~300 criteria with real accounts and real money. We know what's up.

Not sure which broker? For a tailored recommendation, check out the broker finder tool. You can enter your country and it will show only the relevant brokers. Want more details? Compare brokers with this detailed comparison table.

And now, let's see the best brokers for fund investors in the US one by one, starting with the winner, Firstrade.

Firstrade is a US discount stockbroker regulated by the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA). The company was founded in 1985 under the name of First Flushing Securities.

Firstrade is considered safe because it has a long track record and is regulated by top-tier regulators.

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#1 Firstrade
Fees

Firstrade has low fees when it comes to buying and selling funds.

* Note: We excluded the following fees:

• Ongoing fees (expense ratio): All mutual funds have a fee called expense ratio, or sometimes called a management fee or operating expense. This fee is deducted daily and depends on the fund itself, not your broker. Annually it is usually between 0.10% - 2.5%, depending on the fund. There might be different series or classes, which are identified by a letter. For example, a fund Series ‘A’ for retail investors could charge 0.5%-0.1% more than the same fund Series ‘I’, but the latter might have a minimum investment of $200 000.
• Front-load and redemption fees: Again this depends on the mutual fund itself. Some might charge one or both. Usually this one-time fee is between 0 and 5% when you purchase the fund (front-load). If you sell, a redemption fee might apply.
• Short term redemption fees: some brokers might charge if you sell your fund within 30/60/90/etc. days. We assumed a longer time horizon (6 month+) for investors.
• Performance fee: Some funds deduct a %age for above-benchmark net returns, typically 10%-20%. So for example, if they managed to beat the SP500 index by 2% in a given year, they’d deduct 0.2% (if the performance fee was 10% and their benchmark was the SP500)

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#1 Firstrade
Markets and products

While there are many boutique firms, the biggest fund providers (asset managers) like Fidelity, Vanguard, Franklin Templeton, Morgan Stanley, JPMorgan and BlackRock have hundreds of funds, so you’ve probably heard of them already.

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Ally Invest is a US stockbroker regulated by the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA). Its parent company, Ally Financial Inc. dates back to 1911 as the former company, General Motors Acceptance Corporation (GMAC) was founded then. Ally Financial Inc. is listed on the New York Stock Exchange and has a banking subsidiary, called Ally Bank.

Ally Invest is considered safe because it has a long track record and is regulated by top-tier financial authorities.

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#2 Ally Invest
Fees

Ally Invest has low fees when it comes to buying and selling funds.

* Note: We excluded the following fees:

• Ongoing fees (expense ratio): All mutual funds have a fee called expense ratio, or sometimes called a management fee or operating expense. This fee is deducted daily and depends on the fund itself, not your broker. Annually it is usually between 0.10% - 2.5%, depending on the fund. There might be different series or classes, which are identified by a letter. For example, a fund Series ‘A’ for retail investors could charge 0.5%-0.1% more than the same fund Series ‘I’, but the latter might have a minimum investment of $200 000.
• Front-load and redemption fees: Again this depends on the mutual fund itself. Some might charge one or both. Usually this one-time fee is between 0 and 5% when you purchase the fund (front-load). If you sell, a redemption fee might apply.
• Short term redemption fees: some brokers might charge if you sell your fund within 30/60/90/etc. days. We assumed a longer time horizon (6 month+) for investors.
• Performance fee: Some funds deduct a %age for above-benchmark net returns, typically 10%-20%. So for example, if they managed to beat the SP500 index by 2% in a given year, they’d deduct 0.2% (if the performance fee was 10% and their benchmark was the SP500)

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#2 Ally Invest
Markets and products

While there are many boutique firms, the biggest fund providers (asset managers) like Fidelity, Vanguard, Franklin Templeton, Morgan Stanley, JPMorgan and BlackRock have hundreds of funds, so you’ve probably heard of them already.

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E*TRADE is a US-based stockbroker founded in 1982. It is regulated by top-tier regulators like the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

E*TRADE is considered safe because it has a long track record, is listed on a stock exchange, has a banking background, discloses its financials and is regulated by top-tier, US regulators.

In February 2020, E*TRADE was acquired by Morgan Stanley. In case you are curious, we have written an article about this in which you can find the reasons behind the acquisition.

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#3 E*TRADE
Fees

E*TRADE has high fees when it comes to buying and selling funds.

* Note: We excluded the following fees:

• Ongoing fees (expense ratio): All mutual funds have a fee called expense ratio, or sometimes called a management fee or operating expense. This fee is deducted daily and depends on the fund itself, not your broker. Annually it is usually between 0.10% - 2.5%, depending on the fund. There might be different series or classes, which are identified by a letter. For example, a fund Series ‘A’ for retail investors could charge 0.5%-0.1% more than the same fund Series ‘I’, but the latter might have a minimum investment of $200 000.
• Front-load and redemption fees: Again this depends on the mutual fund itself. Some might charge one or both. Usually this one-time fee is between 0 and 5% when you purchase the fund (front-load). If you sell, a redemption fee might apply.
• Short term redemption fees: some brokers might charge if you sell your fund within 30/60/90/etc. days. We assumed a longer time horizon (6 month+) for investors.
• Performance fee: Some funds deduct a %age for above-benchmark net returns, typically 10%-20%. So for example, if they managed to beat the SP500 index by 2% in a given year, they’d deduct 0.2% (if the performance fee was 10% and their benchmark was the SP500)

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#3 E*TRADE
Markets and products

While there are many boutique firms, the biggest fund providers (asset managers) like Fidelity, Vanguard, Franklin Templeton, Morgan Stanley, JPMorgan and BlackRock have hundreds of funds, so you’ve probably heard of them already.

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Vanguard is a US stockbroker founded in 1975. The company is regulated by the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA).

Vanguard is considered safe because it has a long track record and is regulated by top-tier regulators.

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#4 Vanguard
Fees

Vanguard has high fees when it comes to buying and selling funds.

* Note: We excluded the following fees:

• Ongoing fees (expense ratio): All mutual funds have a fee called expense ratio, or sometimes called a management fee or operating expense. This fee is deducted daily and depends on the fund itself, not your broker. Annually it is usually between 0.10% - 2.5%, depending on the fund. There might be different series or classes, which are identified by a letter. For example, a fund Series ‘A’ for retail investors could charge 0.5%-0.1% more than the same fund Series ‘I’, but the latter might have a minimum investment of $200 000.
• Front-load and redemption fees: Again this depends on the mutual fund itself. Some might charge one or both. Usually this one-time fee is between 0 and 5% when you purchase the fund (front-load). If you sell, a redemption fee might apply.
• Short term redemption fees: some brokers might charge if you sell your fund within 30/60/90/etc. days. We assumed a longer time horizon (6 month+) for investors.
• Performance fee: Some funds deduct a %age for above-benchmark net returns, typically 10%-20%. So for example, if they managed to beat the SP500 index by 2% in a given year, they’d deduct 0.2% (if the performance fee was 10% and their benchmark was the SP500)

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#4 Vanguard
Markets and products

While there are many boutique firms, the biggest fund providers (asset managers) like Fidelity, Vanguard, Franklin Templeton, Morgan Stanley, JPMorgan and BlackRock have hundreds of funds, so you’ve probably heard of them already.

Visit broker More

Interactive Brokers was founded in 1978 and is one of the biggest US-based discount brokers. The broker is regulated by several financial authorities globally, including top-tier ones like the UK's Financial Conduct Authority (FCA) and the US Securities and Exchange Commission (SEC).

As it has licenses from multiple top-tier regulators, the broker is considered safe. Also, having a long track record and publicly disclosed financials while being listed on a stock exchange are also great signs for its safety.

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#5 Interactive Brokers
Fees

Interactive Brokers has average fees when it comes to buying and selling funds.

* Note: We excluded the following fees:

• Ongoing fees (expense ratio): All mutual funds have a fee called expense ratio, or sometimes called a management fee or operating expense. This fee is deducted daily and depends on the fund itself, not your broker. Annually it is usually between 0.10% - 2.5%, depending on the fund. There might be different series or classes, which are identified by a letter. For example, a fund Series ‘A’ for retail investors could charge 0.5%-0.1% more than the same fund Series ‘I’, but the latter might have a minimum investment of $200 000.
• Front-load and redemption fees: Again this depends on the mutual fund itself. Some might charge one or both. Usually this one-time fee is between 0 and 5% when you purchase the fund (front-load). If you sell, a redemption fee might apply.
• Short term redemption fees: some brokers might charge if you sell your fund within 30/60/90/etc. days. We assumed a longer time horizon (6 month+) for investors.
• Performance fee: Some funds deduct a %age for above-benchmark net returns, typically 10%-20%. So for example, if they managed to beat the SP500 index by 2% in a given year, they’d deduct 0.2% (if the performance fee was 10% and their benchmark was the SP500)

Visit broker More

#5 Interactive Brokers
Markets and products

While there are many boutique firms, the biggest fund providers (asset managers) like Fidelity, Vanguard, Franklin Templeton, Morgan Stanley, JPMorgan and BlackRock have hundreds of funds, so you’ve probably heard of them already.

Visit broker More

We tested brokers based on more than 300 criteria. Below, we will show you the 4 most important criteria we took into account while picking the best brokers for funds.

Are these brokers safe?

Mutual funds are typically sizable buy and hold investment - so you certainly don’t want to add an extra risk by using a less reputable broker. These brokers are all considered safe. You can be sure none of them is a scam. They are regulated by at least one top-tier regulator. Some of them are also listed on an exchange, and some have a banking background.

Mutual funds are pooled investment vehicles managed by professional portfolio managers, who do the research, pick the investments, and monitor the risk of the fund.

In Western Europe they are sometimes referred to as SIVAC, which is the French name of open-ended mutual funds.

It is worth mentioning that there are some passively managed funds, like Vanguard index funds that track an index for a very low cost and are similar to an ETF. But in this article we’ll focus on open-ended actively managed mutual funds.

Open-ended means that there is no ‘expiry’. Investors can buy and sell the fund each day, and if there are more buyers than sellers, the fund manager will use the proceeds to invest following the fund’s strategy. For example in a US Large Cap Tech Fund, the fund manager could use the new money to buy into (more) Apple or Facebook shares.

Actively managed funds could also choose not to invest the money right away and park it in cash, for example waiting for a better entry point into stocks.

If investors collectively are sellers of the fund, the fund manager could sell shares to raise money or if he hoarded some cash as in the previous example, he could just use that cash to pay investors who want to exit the fund.

Until ETFs became widespread, mutual funds were the only way to get exposure to a diversified portfolio without having to buy into 20-30 individual stocks or bonds.

Funds usually have a benchmark, for example, a US-focused large cap equity fund can be benchmarked against the S&P 500 index.

Do mutual funds still have any advantage over ETFs? The answer is it depends.

Unfortunately, there are a lot of ‘closet index funds’ that just mimic the benchmark they are following, so for example, they’d just buy the S&P500 components with the almost same weighting as the index. Obviously this strategy cannot have any excess return, and you just end up paying a higher fee compared to an ETF.

To learn more about ETFs, be sure to check our article: How to buy ETFs online?

However, there are funds that are actively managed and they do deviate from the index components which can lead to over or underperformance. (There are some actively managed ETFs as well, but it’s not discussed in this article).

You’ll find that most actively managed funds that are benchmarked against major indexes, like the S&P 500 usually underperform their benchmark, in ‘good’ times (when the stock market rises) and therefore usually underperform in the long run as well. (You might want to read more about this in the following CNBC article: Active fund managers trail the S&P 500 for the ninth year in a row in triumph for indexing)

On the other hand, mutual funds sometimes don’t fall as much as indexes and ETFs in bear markets and market downturns or have lower correlation to stock market movements.

To get an idea about how certain mutual funds have performed in the past, it is advisable to check their Morningstar ratings.

Some investors also put a lot of emphasis on the person who’s managing the fund, although it’s not guaranteed that ‘star’ managers will continue to outperform. However it can be a good sign if the fund’s manager has been the same person for a long time.

Most brokers have screeners for funds, our advice is to put in the time and effort to find the fund that is suitable for your investment goals.

To wrap it up, ideally you want to find a mutual fund that can

• Overperform their benchmark or
• Have (sometimes significantly) lower risk than the general stock or bond market, but returns are not that lower, or
• Have low or inverse correlation with other investments you may have, therefore can be a good candidate for portfolio diversification.

On the negative side, the ongoing fees of a fund are a drag on the performance.

Compared to stocks, mutual funds offer less flexibility. Mutual funds are priced once a day, so you would not know the price at which you purchased the funds until the end of the business day. Also underperformance versus stock index benchmarks (and ETFs) is very common among mutual funds.

Note that there are so Closed-End Funds (CEFs). This article doesn’t cover them. They are traded on the stock exchanges, like stocks and can trade on a premium or discount compared to their Net Asset Value (NAV), depending on investors being optimistic or pessimistic on the fund’s prospects. They are not open to new money, only existing shares are traded.

Open-ended funds accept new money and honor redemption requests once on a daily basis and while there might be a bid-ask spread applied to Net Asset Value (NAV), generally any selling and buying will be based on the daily closing NAV. In this article we cover open-ended funds.

You saw the details, now let's zoom out. Here are the best online brokers for funds in the US:

Firstrade is our winner, the best online broker for funds in the US. Free stock, ETF, fund, and options trading. Solid research tools. Quality educational tools.
All are considered safe, and a great choice. Pick the winner, or any runner-up and take the next step in your investment journey. Let us know what you think in the comment section.
Still unsure? Use the broker finder and find the best online broker for you.