Banks are about as popular as the flu right now and because of the constant barrage of fees, both hidden and in plain sight, their lack of popularity in the eyes of consumers is well deserved. But the traditional banks aren't the only financial institutions with a list of fees. Have you checked your investment broker lately? Even the seemingly little-guy-friendly discount brokers can hit you with some fees that seem unnecessary; here are some to watch out for.

Custodial Fees
Some brokers charge you an annual fee they call a custodial fee. Much like an annual fee on a credit card, the brokerage will likely tell you that it covers the administrative work required to service your account. Also much like a credit card, you shouldn't pay the fee. Many discount brokers have individual retirement accounts (IRA) and other investment accounts that don't have a yearly custodial fee.

Inactivity Fees
Think of your investment account like a cruise ship. First, you pay the fare to get on the boat and sail away but where they really make their money is all of the food, drinks and activities you charge to your account.

Your investment account is similar. The broker makes their money when you buy and sell investment products. If you're the long-term buy and hold type of person, the brokerage doesn't make money. Some charge an inactivity fee if you don't buy and sell a certain amount each year.

Options Fees
Options trading has taken off over the past few years but retail investors have to be careful, especially when trading small amounts of options contracts. One broker charges $7 plus $1.50 for each options contract transacted. All brokers have an additional options fee that is often priced per contract. Although not hidden, expect the options fee to be in smaller print than the cost to trade stocks.

Fees to Close Your IRA
In order to discourage transferring to other brokers, most charge a fee to transfer or close; these range from $25 to $75 per account. Just as you shouldn't pay custodial fees, you shouldn't have to pay to get your money back. Since not all brokers charge a fee to close or transfer an account, consider those brokers first when deciding where to keep your investment funds.

Margin Fees
Just as you have to pay interest on any type of loan, you also have to pay interest when your broker loans you money for investing purposes. This is called a margin account. Calculating the interest can be difficult but it may be 9% or more depending on the brokerage. CNBC's Jim Cramer advises retail traders not to trade on margin but if you do, consider how well your longer-term trades have to perform just to pay the margin interest.

Cash
Brokers aren't going to charge you to keep cash in your account, but they aren't going to pay you much either. Although they'll likely pay you a little bit of interest on your cash, you could do better by keeping your money in a savings account at a credit union. It won't be much but even 1% from a credit union is better than what your broker gives you. If you're going to put the cash to work in the very near future, keep it with your broker. If you plan to keep your money in cash for a longer period of time, give it to a credit union.

The Bottom Line
To be fair, some of these fees are charged to you because they first have to pay the fee themselves. Before opening an account with a broker, read all of the boring, fine print on the broker's website. Most of these fees are not hidden if customers take the time to read the fine print. Brokers like Fidelity and many others have an easy to read document on their site that lists all of the fees in plain English. It won't be nearly as interesting or informative as an Investopedia article but it's the best way to avoid fees you didn't plan for.

Related Articles
  1. Investing Basics

    A Primer On Investing In The Tech Industry

    The tech sector can provide fantastic returns for investors with a little know-how in the field.
  2. Mutual Funds & ETFs

    7 Best ETF Trading Strategies for Beginners

    Exchange-traded funds are ideal instruments for beginning traders and investors. Learn the seven best strategies for trading ETFs.
  3. Mutual Funds & ETFs

    3 Fixed Income ETFs in the Biotech Sector

    Learn about the top biotechnology ETFs, such as the SPDR S&P Biotech ETF, the First Trust NYSE Arca Biotech ETF and the iShares Nasdaq Biotech ETF.
  4. Stock Analysis

    4 Reasons Intercept Pharmaceuticals Should Be on Your Radar

    Learn about Intercept Pharmaceuticals and what type of biopharmaceuticals it seeks to create. Understand four reasons why the company is a good investment.
  5. Investing

    Looking To Begin Trading In The Stock Market?

    If you are a new trader, we explain the differences between penny stocks and options so you can make the best decision for your personal trade plan.
  6. Mutual Funds & ETFs

    ETF Analysis: United States Natural Gas Fund LP

    Find out more about the United States Natural Gas exchange-traded fund, the characteristics of the ETF and the suitability and recommendations of it.
  7. Mutual Funds & ETFs

    ETF Analysis: United States Oil Fund

    Find out more about the United States Oil Fund, the characteristics of USO, and the suitability and recommendations of the ETF for investors.
  8. Mutual Funds & ETFs

    ETF Analysis: PowerShares DB Oil

    Find out more about the PowerShares DB Oil exchange-traded fund, the characteristics of the ETF and the suitability and recommendations for it.
  9. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraShort Bloomberg Crude Oil

    Find out about the ProShares UltraShort Bloomberg Crude Oil ETF, the characteristics of the inverse ETF and the suitability and recommendations of it.
  10. Mutual Funds & ETFs

    3 Fixed-Income ETFs in the Silver Sector

    Find out about the top ETFs that track the silver sector, such as the iShares Silver Trust ETF, ETFS Physical Silver Shares ETF and ProShares Ultra Silver ETF.
RELATED TERMS
  1. Bid Wanted

    An announcement by an investor who holds a security that he or ...
  2. Hindsight Bias

    A psychological phenomenon in which past events seem to be more ...
  3. Paper Trade

    Using simulated trading to practice buying and selling securities ...
  4. Financial Exposure

    The amount that one stands to lose in an investment. For example, ...
  5. Bid And Asked

    A two-way price quotation that indicates the best price at which ...
  6. Compound Net Annual Rate - CNAR

    The return on an investment after taking tax implications into ...
RELATED FAQS
  1. What is a stock split? Why do stocks split?

    All publicly-traded companies have a set number of shares that are outstanding on the stock market. A stock split is a decision ... Read Full Answer >>
  2. Is there a difference between financial spread betting and arbitrage?

    Financial spread betting is a type of speculation that involves a highly leveraged derivative product, whereas arbitrage ... Read Full Answer >>
  3. How do I place an order to buy or sell shares?

    It is easy to get started buying and selling stocks, especially with the advancements in online trading since the turn of ... Read Full Answer >>
  4. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  5. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  6. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!