Switching brokerages: how inactivity and platform fees can impact your earnings

With the rise of online brokerages, investors have a plethora of options to choose from when deciding where to trade — but how do you know which works best for your needs?

Investing is one of the best ways to grow your wealth over time. With the rise of technology, there are now many investment platforms to choose from, each offering different features and benefits. 

While lower fees and more diverse investment options have attracted many investors to switch from one online brokerage to another, there are still some important considerations to keep in mind when making the switch. 

Here are two factors that can have a significant impact on your earnings are inactivity fees and platform fees.

Inactivity Fees

Many online brokerages charge inactivity fees for accounts that do not meet a certain level of trading activity. These fees can range from a few dollars to as much as $50 or more per year. While the fees themselves may not seem significant, they can quickly add up over time and eat into your investment returns.

For example, let's say you have $10,000 invested in an online brokerage account that charges a $25 inactivity fee if you don't make at least one trade per quarter. If you only make one trade per year, you'll be hit with four inactivity fees totaling $100, or 1% of your initial investment. If you're not actively trading, it may be worth considering a brokerage that doesn't charge inactivity fees or has a lower threshold for activity.

If you're not actively trading, it may be worth considering a brokerage that doesn't charge inactivity fees or has a lower threshold for activity.

Platform Fees

In addition to trading fees, many online brokerages also charge platform fees for using their trading software. These fees can range from a flat monthly or annual fee to a percentage of your account balance. Platform fees are typically charged to cover the cost of maintaining and improving the trading platform, but they can still eat into your investment returns if they're too high.

For example, let's say you have $50,000 invested in an online brokerage account that charges a 0.25% platform fee per year. That's $125 per year just for using the platform, on top of any trading fees you may incur. If you're a long-term investor who isn't actively trading, it may be worth considering a brokerage with lower platform fees or no platform fees at all.

​If you're a long-term investor who isn't actively trading, it may be worth considering a brokerage with lower platform fees or no platform fees at all.

Investors should also consider the features and tools offered by different brokerages. Some brokerages offer advanced trading tools, research reports, and educational resources, while others may offer more basic trading options. Depending on the investor's goals and experience level, they may want to choose a brokerage that offers more advanced features and tools.

What to Consider When Switching Brokerages

Before switching to a new online brokerage, it's important to consider both inactivity fees and platform fees. Here are a few key factors to keep in mind:

1. Your Trading Activity: If you're an active trader, inactivity fees may not be a concern for you. However, if you're a long-term investor who doesn't make frequent trades, it's important to find a brokerage that either doesn't charge inactivity fees or has a low threshold for activity.

2. Your Investment Strategy: If you're a buy-and-hold investor who isn't actively trading, platform fees can have a significant impact on your earnings. Look for brokerages with low or no platform fees to maximise your returns.

3. Other Fees: Inactivity and platform fees aren't the only fees to consider when switching brokerages. Make sure to review all fees, including trading fees, transfer fees, and account maintenance fees, before making a decision.

4. Investment Options: While fees are an important consideration, it's also important to choose a brokerage that offers the investment options you're looking for. Make sure the brokerage offers access to the types of investments you want to make, such as stocks, bonds, ETFs, mutual funds, and options.

In conclusion, inactivity fees and platform fees can have a significant impact on your investment returns when switching online brokerages. It's important to consider both fees, as well as other factors such as trading activity, investment strategy, other fees, and investment options, before making a decision. By taking the time to research and compare the fees and features of different brokerages, you can find the most cost-effective one that best meets your needs and helps you achieve your investment goals.

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