How Does TD Ameritrade Make Money?


TD Ameritrade charges customers broker commissions, margin interest rates, investment managed account fees, and bank products fees.



How TD Ameritrade Makes Money?


If brokerage firms were government agencies, they wouldn’t have to sell anything. They would simply rely on the taxpayer to provide necessary funding. But of course they aren’t servants of the public, so they have to find ways to attract customers and charge them for services.

TD Ameritrade in particular offers managed accounts for a fee. These are accounts where clients turn over the trading decisions to the broker. TD Ameritrade charges different amounts for different types of managed accounts. In all cases, there is a percentage-based fee for the investment advisory service. The broker starts at 0.30% and goes as high as 1.25%.

In self-directed accounts, the broker charges no asset-based fee. Instead, commissions are levied against trades. Stock and ETF transactions cost $6.95, while each option contract is an additional 75¢. Other securities also have commissions when they are bought or sold. A non-NTF mutual fund at TD Ameritrade costs $49.99. This fee is applied to both the buy and sell sides. US Treasury bonds are $25 when purchased at auction.

If you bought a CD in your TD Ameritrade account and concluded that the broker doesn’t charge a commission because you didn’t see one on your statement, you would be very mistaken. Actually, the price of the CD has a markup (on purchases) and a markdown (on sales). These price adjustments are not shown, but they’re there, and they compensate the broker.

Besides commissions and management fees, the firm also charges for a variety of services. For example, placing a trade over the phone with the assistance of a live representative costs a rather steep $44.99. Using the TD Ameritrade automated phone system instead is a little cheaper at $34.99.

Most securities brokers don’t offer futures and forex trading; but TD Ameritrade does, and it charges for trades. Futures contracts, and options on them, cost $2.25 per transaction. The broker also passes on regulatory and exchange fees to its customers, further reducing its overhead. Forex trades can be placed with or without a commission. In either case, the broker makes money off the bid-ask spread.

Account fees are also assessed by the broker, and these are a common source of earnings. Transferring a brokerage account to another firm costs $75 at TD Ameritrade. Paper statements for accounts below $10,000 in value also cost $2. Every time a stock split occurs for any security held in your account, the broker charges $38.


How TD Ameritrade Does Not Make Money


Despite the many avenues of earnings for the broker, there are also many services that are completely free. For example, a debit card and checks can be added to a securities account, and the broker charges nothing. Closing a retirement account at TD Ameritrade is free of charge. Many other brokerage houses do charge for this service, including Fidelity, Merrill Edge, and WellsTrade.


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