For one thing, the deal may end up bolstering deposits at the traditional bank, more than driving business to the company’s online brokerage firm. Bank of America, based in Charlotte, N.C., owns both the bank of that name and Banc of America Investment Services, its brokerage arm.
Bill Doyle, an analyst at Forrester Research, noted that the $25,000 minimum deposit that is required to qualify for free trades must be kept in traditional federally insured bank accounts — like checking, savings, money markets and certificates of deposit. (These can be held in either taxable or retirement accounts.) The balance in brokerage accounts does not count toward the $25,000.
“They’ve found a better toaster,” Mr. Doyle said, referring to typical bank giveaways in bygone years.
Depending on your finances, $25,000 may be too much to park in cash accounts. Many financial planners advise people who are in the middle of their income-earning years to keep 10 to 20 percent of their portfolio in cash.
But personal finances are, well, personal. People who are already in retirement, or who have predictable near-term costs like college tuition, might keep more than 20 percent of their money in C.D.’s.
Under the Bank of America offer, if your combined deposits dip below $25,000, you would revert to basic rates for online trading. Bank of America already charges its banking customers relatively little for online stock trades: $5 to $10, depending on the type of bank account. That compares with $14 for online brokerage customers who don’t also bank there. Online stock trades at $5 to $10 are competitive with rates offered by discount online brokers like E*Trade and TD Ameritrade.
The bank’s offer is available immediately in the Northeast and will be rolled out nationwide by next spring. If keeping $25,000 in cash seems reasonable to you, the next step would be to examine the fine print and compare it with the competition’s.
To begin with, Bank of America is allowing 30 free trades a month, but that applies only to orders that are entered on its Web site for stocks and exchange-traded funds. There is a charge to buy bonds or options online, or to place stock trades over the phone.
If you buy mostly stocks and E.T.F.’s — and always enter the orders online — the 30-trade rule will probably suit you just fine. Only 4 percent of American investors trade more than 10 times a year, according to Forrester Research, a technology consulting firm in Cambridge, Mass.
So if you trade 10 times a year, you could save $100 to $200 by switching from your current online broker. If you have an account at TD Ameritrade, for example, you pay a flat $9.99 for an online stock trade, making for an easy comparison. In this case, the savings for 10 free trades a year would be $100.
Some online brokers charge less than $9.99, but they have various rates based on a host of considerations, including the number of shares being traded, the amount of assets in the account and the frequency of trades.
For example, Fidelity’s cheapest rate for an online stock trade is $8. You can qualify for it with as little as $25,000 in assets — but only if you trade at least 120 times a year. If you have $25,000 and trade at least 36 times a year, the cost is $10.95 a trade. Fidelity’s top rate for online stock trades is $19.95. So if you don’t qualify for one of its lower rates based on either the size of your account or the frequency of your trading patterns, you would save about $200 a year if you made 10 free trades at Bank of America, and maintained its deposit account minimum.
Of course, the cost of trading isn’t everything. Some people stick with a particular brokerage firm because they prefer its Web site or the range and convenience of its mutual fund offerings. Bank of America’s online brokerage firm offers investors 1,300 mutual funds that do not charge sales fees, but people who invest regularly in mutual funds may want to make sure that their favorite fund families are included.
As for the Web sites’ capabilities, Fidelity and Charles Schwab were both well-rated in an online investor customer survey last year by J. D. Power & Associates. TD Ameritrade and E*Trade were ranked somewhat lower, but the Web sites appear to be designed for different types of investors. While Fidelity’s and Schwab’s sites are geared more toward buy-and-hold investors, TD Ameritrade’s and E*Trade’s sites are aimed at frequent traders.
Bank of America’s brokerage Web site wasn’t included in the rankings of the J. D. Power survey, because the sample size was too small, said James Lohmann, an analyst at J. D. Power. But he said that customers ranked Bank of America’s brokerage site as about average for the industry. Currently, Bank of America’s online brokerage customers have free access to research from Standard & Poor’s, Argus Research, Briefing.com and Thomson Financial.
Finally, if you’re not already banking at Bank of America and are thinking of moving your deposits from another bank, you should compare all the fees and services at the banks as well, said Barbara Roper, the director of investor protection at the Consumer Federation of America, based in Washington. “Don’t be seduced by just one product,” she said.
For example, she advised bank customers to consider where they typically use automated teller machines, to determine if they might pay more or less in A.T.M. fees, and whether the interest rates might be higher or lower on their C.D.’s.
SHE also reminded customers who keep their bank and brokerage accounts at one company to be prepared for cross-selling, the industry’s term for marketing many different types of financial products and services to customers.
“Often when customers are given the trade-off between the convenience of one-stop shopping and the loss of privacy that goes with that, people will choose the convenience,” Ms. Roper said. “But they should factor in how comfortable they feel with all of that data gathered in one place, and recognize that it will be used for cross-marketing.”
Bank of America executives say that they hope to make up for the losses from free stock trades by selling more mortgages and C.D.’s, and charging interest on margin accounts, the loans that brokers make to customers to buy stock.
“We are highly confident that this offer won’t cost us, that it will be accretive from a revenue and earnings standpoint from the beginning,” said Tim Maloney, the president of Banc of America Investment Services. “Our own research has shown that a very high percentage of our customers would like to consolidate their financial affairs with fewer, or even with one provider.”
Mr. Maloney said the offer had already accomplished something else he considers important. He said that when he demonstrated the company’s online trading system this month in Bryant Park in Manhattan, “many people remarked that they didn’t know that Bank of America was in the investment business.” After the buzz generated by the offer of free trades, he said, “America knows that we’re in the investment business.”
