1 in 5 Investors Is in the Dark About Fees. Look Out for These in Your Brokerage Account

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Investing money in a brokerage or IRA account is a great way to grow long-term wealth. But it’s important to choose the right home for your money, and also, the right investments. And one thing you’ll want to look out for in that regard is the amount of money you’re spending on fees.

Fees are quite common in the course of investing. Yet in a recent FINRA Foundation report, 21% of investors said they don’t think they pay any kind of fee in their accounts. Meanwhile, 17% said they have no idea how much they pay in fees.

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Whether you’re investing in a taxable brokerage account for different goals or an IRA for retirement, it’s important to know what fees you’re looking at. And here are a few specific brokerage account fees to look out for.

1. Minimum balance fees

Just as some checking accounts charge a fee if your balance dips below a certain threshold, so too do some brokerage accounts charge a fee if you don’t maintain a minimum balance. It’s generally best to avoid brokerage accounts that require a minimum balance because that puts a lot of pressure on you that you don’t need. But if you’re willing to cope with that requirement, make sure to familiarize yourself with your brokerage’s rules to avoid this fee.

2. Inactivity fees

You may go through a period where you don’t feel like buying and selling stocks or other assets. Unfortunately, some brokerages will charge you for not making any moves in your account. And so generally speaking, it’s best to avoid putting money into a brokerage account that will penalize you for sitting back and doing nothing for too long a period of time.

3. Trading fees

There was a point when many brokerage accounts would charge you a fee every time you bought or sold a stock. For the most part, major brokerages don’t do this anymore. But if your account somehow still maintains this practice, consider it a wake-up call to put your money elsewhere.

4. Investment fees

In some cases, you’ll pay certain fees by virtue of using one brokerage account over another. But in other cases, the specific investments you choose might come loaded with fees. In the aforementioned report, 38% of people with money in mutual funds believed they don’t pay any fees for owning those funds.

But actually, mutual funds tend to come with large fees, known as expense ratios, that can eat into your returns. And so unless you’re really getting outstanding performance from your mutual funds, you may want to consider moving your money into index funds. Index funds are passively managed, unlike mutual funds, so their costs aren’t as high. But you may find that their performance is comparable.

The fees you pay as an investor can erode your returns and leave you with less long-term wealth. And that’s clearly not what you want. So if you’re going to invest your money, make sure you’re aware of the different fees you may be on the hook for. Moving to a different brokerage account and choosing different investments could result in a world of savings.

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