As competition among stock brokers has heated up, online players have rushed to provide new features to their clients, including being able to invest in fractions of a share. This feature allows investors to purchase a stock or ETF with almost any amount of money rather than needing to have enough cash to buy a full share. It’s perfect for high-priced bellwether stocks such as Alphabet and Amazon.
The ability to buy fractional shares is attractive, especially for investors just starting out. You can invest with a much more modest amount of money, and with some stocks selling for thousands of dollars per share, you can buy what you can afford. With this feature it’s much easier to use dollar-cost averaging, especially now that major online brokers have slashed their transaction fees to zero.
But while some brokers have just begun allowing investors to buy fractional shares, others have allowed them to do so indirectly as part of dividend reinvestment plans for many years. That’s the case even if the brokers didn’t offer trading of fractional shares. This divide still exists today, with some brokers offering fractional shares via dividend reinvestment but not otherwise.
With dividend reinvestment plans you’re able to purchase only the stock that made the payout, and no other. Of course, now with no trading commissions at all the major online brokerages you can reinvest the cash yourself with no extra cost, except a little bit of your time.
Below Bankrate highlights online stock brokers that allow fractional shares to be traded and describes key details of each broker’s program and offering.
The best brokers for fractional share investing:
- Charles Schwab
- Fidelity Investments
- Interactive Brokers
- Robinhood
- E-Trade
- Merrill Edge
- Vanguard
- Tastytrade
- SoFi Active Investing
- WellsTrade
Overview: Top online brokers for fractional share investing in January 2024
Charles Schwab
Charles Schwab has long been an investor-focused outfit, and allows investors to buy a fractional share of any stock in . Called Stock Slices, Schwab’s program allows you to buy a slice of these stocks with as little as $5 and you can buy up to 30 slices at a time. And like trades for regular shares, you’ll be able to place your trades without a commission. You’ll continue to be able to reinvest any dividends from your stocks into fractional shares of the same stock.
- Fractional purchases: Yes
- Fractional dividend reinvestment: Yes
- Securities in the program: ~500, including all stocks in the S&P 500
Fidelity Investments
Fidelity is routinely a top contender among brokerages, and not surprisingly features a way to buy fractional shares, which it calls Stocks by the Slice. You can start with just $1 and buy shares of more than 7,000 stocks and ETFs listed on U.S. exchanges. You’ll still be able to purchase stocks with zero trading commissions, and you’ll also be able to reinvest your dividends in more shares, even fractional shares, whether they’re stocks or ETFs.
- Fractional purchases: Yes
- Fractional dividend reinvestment: Yes
- Securities in the program: More than 7,000 stocks and ETFs
Interactive Brokers
Long known as a high-powered alternative for professional and active traders, Interactive Brokers also offers fractional shares, which is a boon to investors without those deep pockets. You can purchase fractional shares on the broker’s Pro platform (cost: $1 or at the broker’s tiered rate) or on its Lite platform, where trading is free. However, only stocks with average daily volume of $10 million or a market cap greater than $400 million are eligible for the program. Also eligible: ETFs, foreign stocks trading as American depositary receipts (ADRs), Canadian stocks and ETFs, and European stocks.
- Fractional purchases: Yes
- Fractional dividend reinvestment: No
- Securities in the program: More than 11,000 stocks, ETFs and ADRs
Robinhood
Robinhood has long been known for its commission-free trading (which extends to options, too) but it also allows you to buy the tiniest fraction of a share. Yes, you can buy as little as one-millionth of a share of your favorite stocks, and you can buy a huge variety of stocks as well. Stocks trading over $1 per share and with a market capitalization greater than $25 million are eligible for the program, and ETFs are available for fractional shares, too. You can also reinvest dividends into fractional shares, but must enable the fractional feature first.
- Fractional purchases: Yes
- Fractional dividend reinvestment: Yes
- Securities in the program: Thousands of ETFs and stocks above the volume and size thresholds
E-Trade
E-Trade doesn’t offer fractional purchases of stock, but it does allow investors to reinvest their dividends into fractional shares. E-Trade will reinvest dividends only in a stock or ETF that is trading above $5 per share.
- Fractional purchases: No
- Fractional dividend reinvestment: Yes
- Securities in the program: Thousands of stocks and ETFs
Merrill Edge
Merrill Edge is another broker that allows dividend reinvestment in fractional shares but does not allow clients to purchase fractional shares directly. Merrill lets investors reinvest dividends from stocks and ETFs as well as mutual funds. You can quickly set up whether you want each security in your portfolio to reinvest with an online selection, and if you change your mind, you can flip your choice later on just as easily.
- Fractional purchases: No
- Fractional dividend reinvestment: Yes
- Securities in the program: Thousands of stocks, ETFs and mutual funds
Vanguard
Vanguard is well known for its mutual funds and ETFs, and while you can buy fractional shares when you’re placing an order of these types of securities, that’s the only kind of fractional purchase that you’ll be able to do. Vanguard does not offer fractional-share investing in stocks or non-Vanguard ETFs, though the broker does allow you to reinvest dividends in stocks, ETFs and mutual funds. However, the broker will not reinvest in certain low-volume stocks, some U.S. stocks and all foreign stocks.
- Fractional purchases: Only Vanguard in mutual funds and ETFs
- Fractional dividend reinvestment: Yes
- Securities in the program: Stocks, ETFs and mutual funds
Tastytrade
Tastytrade is one of the best brokers for short-term traders, but with the addition of fractional shares for both purchases and dividend reinvestment, it’s now a more interesting option for long-term investors, too. You’ll have to place a minimum order of $5, and you’re able to use only market orders, not limit orders, meaning you’ll have to accept the prevailing price at the time you place your order.
- Fractional purchases: Yes
- Fractional dividend reinvestment: Yes
- Securities in the program: Thousands of stocks and ETFs
SoFi Active Investing
SoFi Active Investing is one of the best brokers for low costs, and it extends that leadership to fractional shares, too. At SoFi, you’ll be able to buy fractional shares directly and reinvest your dividends into fractional shares, a combo that is not always available at brokers offering partial shares. To reinvest dividends, the stock price must be greater than $4 per share, which includes most U.S. stocks and foreign stocks trading on U.S. exchanges.
- Fractional purchases: Yes
- Fractional dividend reinvestment: Yes
- Securities in the program: More than 4,000 stocks and ETFs
WellsTrade
WellsTrade entered the fractional share game in late 2023 with the launch of Stock Fractions, its program allowing the purchase of partial shares of stock. You’ll be able to purchase 500 stocks through the program, with a minimum of $10 per order. As for dividend reinvestment, while WellsTrade lets you buy new shares with your dividend, you won’t be able to buy partial shares automatically with it. That’s a small detail in the age of no-commission trades.
- Fractional purchases: Yes
- Fractional dividend reinvestment: No
- Securities in the program: 500 stocks
As an experienced financial analyst and enthusiast with a deep understanding of the stock market and brokerage industry, I've closely followed the evolution of online trading platforms and the introduction of fractional share investing. Over the years, I've actively engaged with various brokers, explored their offerings, and closely monitored market trends to provide informed insights and recommendations.
The article you've provided discusses the recent trend among online stock brokers to offer fractional share investing as a competitive feature. This development has democratized investing by allowing individuals to purchase portions of stocks or exchange-traded funds (ETFs) rather than requiring them to buy whole shares, particularly relevant for high-priced stocks like Alphabet and Amazon. Let's delve into the concepts and key details mentioned in the article:
-
Fractional Share Investing:
- Fractional share investing enables investors to buy a portion of a stock or ETF, making it possible to invest with smaller amounts of money. This feature is particularly attractive for high-priced stocks, as investors can now buy what they can afford instead of needing enough cash for a full share.
-
Dollar-Cost Averaging (DCA):
- Dollar-cost averaging involves regularly investing a fixed amount of money into securities, regardless of their price fluctuations. With fractional share investing, DCA becomes easier, allowing investors to spread their investment across various price points.
-
Dividend Reinvestment Plans (DRIP):
- Dividend reinvestment plans allow investors to automatically reinvest dividends received from stocks into additional shares or fractional shares of the same stock. Some brokers have offered fractional share investing indirectly through DRIPs even before introducing direct fractional share trading.
-
Online Brokers Offering Fractional Shares:
- The article lists several online brokers that offer fractional share investing, including Charles Schwab, Fidelity Investments, Interactive Brokers, Robinhood, E-Trade, Merrill Edge, Vanguard, Tastytrade, SoFi Active Investing, and WellsTrade.
-
Broker-specific Programs and Offerings:
- Each broker has its own program for fractional share investing, with varying features such as minimum investment amounts, eligible securities, commission fees (or lack thereof), and dividend reinvestment options.
-
Eligible Securities:
- Brokers typically allow fractional investing in a wide range of stocks and ETFs, often including popular indices like the S&P 500, as well as specific criteria for eligibility based on factors like average daily volume and market capitalization.
-
Minimum Investment Requirements:
- Some brokers have minimum investment requirements for fractional share purchases, which can vary from as low as $1 to $10 or more per order.
-
Dividend Reinvestment:
- While some brokers allow fractional dividend reinvestment, others may limit this feature to certain securities or have specific criteria such as minimum share prices.
Overall, the introduction of fractional share investing by online brokers has expanded opportunities for investors, particularly those with limited capital, to participate in the stock market. This trend reflects a broader shift towards accessibility and affordability within the investment landscape, driven by technological advancements and changing consumer preferences.
