Bank of America Corp., escalating a raging price war as banks and brokerage firms battle for online stock-trading customers, plans to offer as many as 30 free trades a month to millions of customers with at least $25,000 in deposits.
nationwide eligibility by February 2007.
the complete Wall Street Journal article is linked below (subscription may be needed):
As of 10/11/2006, offer available in CT, DE, MA, ME, NH, NJ, NY, PA, RI, and VT only, and does not apply to Custodial Accounts, Business/Corporate Accounts, Investment Club and Partnership Accounts held at BAI.
So this offer is only for people in thoses states right now.
Important distinction in the fine print...the $25k balance requirement must be maintained in your banking accounts, not in your brokerage accounts. If you routinely park that kind of cash in your BofA accounts, it is no big deal, but I think the distinction is going to be lost on most people at first glance.A combined balance of $25,000 or more across any of your Bank of America, N.A. deposit accounts (including checking, savings, and CDs).
dcwilbur said: Important distinction in the fine print...the $25k balance requirement must be maintained in your banking accounts, not in your brokerage accounts. If you routinely park that kind of cash in your BofA accounts, it is no big deal, but I think the distinction is going to be lost on most people at first glance.A combined balance of $25,000 or more across any of your Bank of America, N.A. deposit accounts (including checking, savings, and CDs).I agree that this could be a little confusing for some, but I'd hardly call it "fine print", it's the second point in a bullet list of two points right there in the main text.
Beckles said: I agree that this could be a little confusing for some, but I'd hardly call it "fine print", it's the second point in a bullet list of two points right there in the main text.And how many people really know that when they open an account with Banc of America Investment Services, Inc., that it isn't the same as Bank of America, N.A? Even the wording they use in that bullet, "including checking, savings, and CDs," is misleading, since that really is the ONLY kind of balances you would have at Bank of America, N.A.
C'mon, didn't you read it at first glance as saying, "Wow, transfer $25k to BofA and get free trades?"
dcwilbur said: Beckles said: I agree that this could be a little confusing for some, but I'd hardly call it "fine print", it's the second point in a bullet list of two points right there in the main text.And how many people really know that when they open an account with Banc of America Investment Services, Inc., that it isn't the same as Bank of America, N.A? Even the wording they use in that bullet, "including checking, savings, and CDs," is misleading, since that really is the ONLY kind of balances you would have at Bank of America, N.A.
C'mon, didn't you read it at first glance as saying, "Wow, transfer $25k to BofA and get free trades?"Not once I read the two bullet points right in the main text ...
A self-directed brokerage account with Banc of America Investment Services, Inc.
A combined balance of $25,000 or more across any of your Bank of America, N.A. deposit accounts (including checking, savings, and CDs)
As I said, I would agree it may be confusing to some, but I don't see how anyone could claim it's in the fine print. The "including" is not as confusing as you make it seem when it is taken in context with the rest of the text it actually appears with.
Assumptions: Value of a trade: $7 (Scottrade) Opportunity cost of lost interest: 5.05% (EmigrantDirect rate)
If you're going to actually make 25 trades/mo, this is exceedingly hot. Otherwise, not so much. That 25k would earn you about $1262.50 in interest that year. Compare that to the value of the 360 (30x12) trades annually, which is $2520. This is the equivalent of 10.08% interest, and the value of the free trades probably is not taxable, whereas the money in a savings account would be, increasing the real value even more. At a 20% tax bracket, this is the equivalent of 12.6%.
If, however, you are not going to make 30 trades/month, you would need to average 180.35 trades/yr (about 15/month) to break even. Assuming the 20% tax bracket, the real earnings on the $1262.50 would be $1010. This would mean you would need to make 144.28 trades/yr (about 12/month). I would bet that most people do not trade this much.
This analysis leads me to conclude that this deal is hot for daytraders, but not for others.
dcwilbur said: And how many people really know that when they open an account with Banc of America Investment Services, Inc., that it isn't the same as Bank of America, N.A? Even the wording they use in that bullet, "including checking, savings, and CDs," is misleading, since that really is the ONLY kind of balances you would have at Bank of America, N.A.
C'mon, didn't you read it at first glance as saying, "Wow, transfer $25k to BofA and get free trades?"
LOL by law banks cant be brokers. So the way they get around it is to have subsidiaries own the brokerage service and link it to the checking account.
Citibank - brokerage unit is called Citibank Investment Services
Wells Fargo- brokerage unit is called Wells Fargo Investments and has this disclaimer on there web page: "Investment products and brokerage services are available through Wells Fargo Investments, LLC (member SIPC), a non-bank affiliate of Wells Fargo & Company"
WAMU brokerage unit is called WM Financial Services, Inc. and WAMU has this big disclaimer on there web page "WM Financial Services, Inc. is an affiliate of Washington Mutual, Inc., and its banking subsidaries, and is a member of the NASD/SIPC."
So not sure what your problem with BOA's brokerage unit it is basically the same way as all other banks. You can transfer funds back and forth instantly etc. It not like you need to send money out via ACH or anything.
Another thing as far as Wells Fargo, BOA and Citibank you select you checking account to be your seatlement account so all money is paid and withdrawn from your checking account to seatle all brokerage trades atleast in Cali you can because this is how my accounts are set up their.
Xeon852
Senior Member - 1K
posted: Oct. 11, 2006 @ 9:46a
HKnight said: Assumptions: Value of a trade: $7 (Scottrade) Opportunity cost of lost interest: 5.05% (EmigrantDirect rate)
If you're going to actually make 25 trades/mo, this is exceedingly hot. Otherwise, not so much. That 25k would earn you about $1262.50 in interest that year. Compare that to the value of the 360 (30x12) trades annually, which is $2520. This is the equivalent of 10.08% interest, and the value of the free trades probably is not taxable, whereas the money in a savings account would be, increasing the real value even more. At a 20% tax bracket, this is the equivalent of 12.6%.
If, however, you are not going to make 30 trades/month, you would need to average 180.35 trades/yr (about 15/month) to break even. Assuming the 20% tax bracket, the real earnings on the $1262.50 would be $1010. This would mean you would need to make 144.28 trades/yr (about 12/month). I would bet that most people do not trade this much.
This analysis leads me to conclude that this deal is hot for daytraders, but not for others. If the money is going to be in savings, then you can open an AAA or NEA money market at 5.11% APY for balances 10k-50k (not including the NEA promo rate), so if you are keeping the money in ED, you are actually better off.
dolmar said: So not sure what your problem with BOA's brokerage unit it is basically the same way as all other banks. You can transfer funds back and forth instantly etc. It not like you need to send money out via ACH or anything.Geez, guys. You are blowing this all out of proportion. All that I was pointing out was that in order to get the free trades in your brokerage account, you also need to maintain a $25,000 balance in your deposit accounts!
I certainly know that banks can't be brokers and that funds in brokerage accounts aren't FDIC insured and that all the major players get around this with affiliates and subsidiaries and holding companies and such. I also know that this distinction is lost on a fair portion of the general public. Now can we get over this point?
Xeon852 said: HKnight said: Assumptions: Value of a trade: $7 (Scottrade) Opportunity cost of lost interest: 5.05% (EmigrantDirect rate)
If you're going to actually make 25 trades/mo, this is exceedingly hot. Otherwise, not so much. That 25k would earn you about $1262.50 in interest that year. Compare that to the value of the 360 (30x12) trades annually, which is $2520. This is the equivalent of 10.08% interest, and the value of the free trades probably is not taxable, whereas the money in a savings account would be, increasing the real value even more. At a 20% tax bracket, this is the equivalent of 12.6%.
If, however, you are not going to make 30 trades/month, you would need to average 180.35 trades/yr (about 15/month) to break even. Assuming the 20% tax bracket, the real earnings on the $1262.50 would be $1010. This would mean you would need to make 144.28 trades/yr (about 12/month). I would bet that most people do not trade this much.
This analysis leads me to conclude that this deal is hot for daytraders, but not for others. If the money is going to be in savings, then you can open an AAA or NEA money market at 5.11% APY for balances 10k-50k (not including the NEA promo rate), so if you are keeping the money in ED, you are actually better off.
You can also buy one of BOA Liquid CD which currently pays 5% in cali and allows 1 withdrawal durning the year as long as you maintain $5K min. So differnce between interest lost from Savings account to BOA is not a huge amount it really only $250 a year compared to highest yeilding 1 year CD and they dont allow 1X no penilty withdrawal. Also like Xeon852 said AAA/NEA MMA pays a higher rate than ED/Citi/HSBC/WAMU and many other online savings accounts except a few.So the CD would work if BOA reduced the rate on these accounts otherwise thses MMA account out preform BOA liquid CD anyways.
Thanks OP! I have been thinking about renting a safe deposit box from BOA but hesitated to deposit a larger amount for a free one. Was going to just pay for it. The recent 5+% MMA was tempting but I didn't pull the trigger, and now this!
It'd be interesting to see how other brokage firms react, especially eTrade.
ETFnerd
Happy Member
posted: Oct. 11, 2006 @ 11:12a
I agree that it may be better to see what the online brokers will counter-offer.
i know in the past, brokers that offered free trades, made up the difference elsewhere. whether it be execution or widerspreads. might be best to wait and see some real reviews first rather than jump at the first chance someone says free. especially since $25k is a lot to leave on deposit in a bank acct.
ETFnerd said: I agree that it may be better to see what the online brokers will counter-offer.
Did any online brokers counter offer BOA $5-$9 stock trades they announced on Jan 1, 2007? Anyone with any BOA checking account got $9 trades making them cheaper than Fidelity, Schwab, Etrade, TDAmeritrade and if you had $10K+ between brokerage/banking products before you got $7 stocks trades so they matching Scottrade. For people with $100K+ they were $5 trades.
BOA was one the cheaper retail friendly places to do stock trades before this and is now the cheapest by far.
What I am shocked is Citi/Chase/WAMU/Wells Fargo and all other bank did not match thier offer in Jan and I wonder what they will do now. I think alot of the brokers like Vanguard/Fidelity/E-trade/Schwab/Scottrade etc are going to have to match this new offer or loose a lot of business as most of thier customers who are doing lots of trades dont have a problem maintaining $25K in banking products at all.
TheWiseGuy said: gee, i wonder how their execution will be?
i know in the past, brokers that offered free trades, made up the difference elsewhere. whether it be execution or widerspreads. might be best to wait and see some real reviews first rather than jump at the first chance someone says free. especially since $25k is a lot to leave on deposit in a bank acct.
You know how much it costs a brokerage house to have floor access to NYSE? $1000 a month so for that fee thay can clear their own stocks them self. I am sure other exchanges charge about the same thing.
dolmar said: What I am shocked is Citi/Chase/WAMU/Wells Fargo and all other bank did not match thier offer in Jan and I wonder what they will do now. I think alot of the brokers like Vanguard/Fidelity/E-trade/Schwab/Scottrade etc are going to have to match this new offer or loose a lot of business as most of thier customers who are doing lots of trades dont have a problem maintaining $25K in banking products at all. i don't think the defections will be that high. people don't change brokers as easily as they do other things. i currently have 5 brokers, i don't look at the cost of a trade as a primary reason for choosing one. there is no perfect one, different ones offer different reasons for me to stay with them. the commission is just a cost of doing business. i for one will not be jumping to boa anytime soon just cuz they advertise free.
dolmar said: You know how much it costs a brokerage house to have floor access to NYSE? $1000 a month so for that fee thay can clear their own stocks them self. I am sure other exchanges charge about the same thing.
So I dont think BOA execution will be an issue personally.
i'm not intimately familiar with the fee schedules for the various exchanges, but i don't think it is only $1000. if it were that cheap, why doesn't everyone sign up. plus, that link u gave is for options access via nyse/arca.
and by execution, i'm mostly referring to speed. i find that free outfits try and route the orders internally before going out to the open mkt. and if u use limit orders, those orders will usuallly sit on their books until it is marketable. meaning, don't look for any price inprovements.
ETFnerd
Happy Member
posted: Oct. 11, 2006 @ 11:48a
Jan 1, 2007? Do you mean 2006?
I think that Ameritrade did counter-offer with $500 and 500 free trades which was the sweetest deal of the year. Free trades are cr@p to someone who does not trade frequently. iven that it costs $500-800 in marketing to a shop to add an incremental customer, I am looking for cash.
dolmar said: ETFnerd said: I agree that it may be better to see what the online brokers will counter-offer.
Did any online brokers counter offer BOA $5-$9 stock trades they announced on Jan 1, 2007? Anyone with any BOA checking account got $9 trades making them cheaper than Fidelity, Schwab, Etrade, TDAmeritrade and if you had $10K+ between brokerage/banking products before you got $7 stocks trades so they matching Scottrade. For people with $100K+ they were $5 trades.
BOA was one the cheaper retail friendly places to do stock trades before this and is now the cheapest by far.
What I am shocked is Citi/Chase/WAMU/Wells Fargo and all other bank did not match thier offer in Jan and I wonder what they will do now. I think alot of the brokers like Vanguard/Fidelity/E-trade/Schwab/Scottrade etc are going to have to match this new offer or loose a lot of business as most of thier customers who are doing lots of trades dont have a problem maintaining $25K in banking products at all.
ETFnerd
Happy Member
posted: Oct. 11, 2006 @ 11:51a
It costs way more than access to the exchange floor to clear trades. Think settlement, record-keeping, sec net capital requirements, custody, transfer agent. Securities clearing is a low margin business and the only profitable part of it is the interest they make on margin loans. B of A has scale, but not the # of accounts that other online brokers have.
dolmar said: TheWiseGuy said: gee, i wonder how their execution will be?
i know in the past, brokers that offered free trades, made up the difference elsewhere. whether it be execution or widerspreads. might be best to wait and see some real reviews first rather than jump at the first chance someone says free. especially since $25k is a lot to leave on deposit in a bank acct.
You know how much it costs a brokerage house to have floor access to NYSE? $1000 a month so for that fee thay can clear their own stocks them self. I am sure other exchanges charge about the same thing.
TheWiseGuy said: i'm not intimately familiar with the fee schedules for the various exchanges, but i don't think it is only $1000. if it were that cheap, why doesn't everyone sign up. plus, that link u gave is for options access via nyse/arca.
and by execution, i'm mostly referring to speed. i find that free outfits try and route the orders internally before going out to the open mkt. and if u use limit orders, those orders will usuallly sit on their books until it is marketable. meaning, don't look for any price inprovements.
I agree 100% most brokers try to route all sell and buy orders internally as they can avoid the fees which are like 10-15 cents per trade on floor on top of monthly fee.
ETFnerd yeah sorry I meant Jan 1 2006. I know their are others fees involded in being a broker no question about it. If you look at Fidelity, Etrade, Schwab, or most of the other popular retail brokerage firms they make big chunk of thier profits from trading fee's. Also places like interactivebrokers could not charge 0.005 per share on stock trades if this cost was so high either.
ETFnerd
Happy Member
posted: Oct. 11, 2006 @ 12:09p
According to the guy running zecco, it costs $2 to execute and settle a trade. If Interactive brokers is charging a half penny per share, then their average trade needs to be 400+ shares for their trade execution/clearing to be profitable. I doubt that this is the average for retail customers.
ETFnerd
Happy Member
posted: Oct. 11, 2006 @ 12:14p
I wish that ameritrade would stop paying Sam Waterston truckloads of money, and would put some more cash in my pocket. Apparently the TD Ameritrade campaign is budgetted to cost $150 million.
wow...the brokerage stocks are getting killed. arbitrage opportunity baby!
nuid
Senior Member
posted: Oct. 11, 2006 @ 1:53p
Thats a very bad argument. ALL firms are required to provide "best execution". Those that dont have been & can be FINED.
TheWiseGuy said: gee, i wonder how their execution will be?
i know in the past, brokers that offered free trades, made up the difference elsewhere. whether it be execution or widerspreads. might be best to wait and see some real reviews first rather than jump at the first chance someone says free. especially since $25k is a lot to leave on deposit in a bank acct.
nuid said: Thats a very bad argument. ALL firms are required to provide "best execution". Those that dont have been & can be FINED.
i'm not understanding what ur trying to say. r u saying every firm has equal quality of execution? what world are u living in and how long have u been trading?
they come out with rankings at least once a yr, pick up any financial publication and they will list ranking of brokers and one of the criteria is trade execution.
Dismiss this at your peril - this is a very serious entry from BOA and it might have a lasting effect on online brokerage industry.
Execution will be just fine - BAC is a significant player on Wall Street these days and they have access to technology. Whatever they lack - they can acqure, they have deep pockets and staying power. In fact their unit which made this offer - Banc of America Investment Services - is a remnant of some online brokerage they bought in early 2000's No, they won't corner the market of online trading, but what if they'll get 10% of it ? Quite possible considering they own 10% of US bank deposits. Market today dropped ET and AMTD by 10% - corresponds to 10% above. Citi, Chase etc. might respond now - then what ?
Hidden costs of the offer is not as bad as some people present. $25K one needs to park have somewhat flexible terms - either you satisfy $25K previous month average or previous business day:
When you make an online equity trade, BAI determines whether you meet the balance requirement to qualify that trade for the commission fee waiver. BAI adds the average collected balances in your checking and savings accounts as of the prior month to the balances in your CD and FDIC-insured IRA accounts as of the prior business day. If this calculation reflects a combined total of less than $25,000, BAI then makes a second calculation to see if the trade qualifies by adding the balances in your checking, savings, CD and FDIC-insured IRA accounts as of the prior business day.
- at least that's how I read T&Cs
If you use NEA Money Market as your sweep account and you not always fully invested and you have brokerage account large enough you might just meet $25K threshold most of the times by default.
I will probably try it as a main account for equities and ETFs. Estimating $200K account with 20 trades per month this baby will save you about full 1% of assets annually and that is a serious business.
ETFnerd
Happy Member
posted: Oct. 11, 2006 @ 4:33p
TheWiseGuy said: nuid said: Thats a very bad argument. ALL firms are required to provide "best execution". Those that dont have been & can be FINED.
i'm not understanding what ur trying to say. r u saying every firm has equal quality of execution? what world are u living in and how long have u been trading?
they come out with rankings at least once a yr, pick up any financial publication and they will list ranking of brokers and one of the criteria is trade execution.
I think that nuid isn't saying that all brokers have the same quality of execution. I think he is referring to the NASD requirement that the broker has to make the attempt to provide best execution. So if the broker was purposely widening the spread, and thus harming the investor, for its own gain like you suggested they would be violating securities laws.
HKnight said: Assumptions: Value of a trade: $7 (Scottrade) Opportunity cost of lost interest: 5.05% (EmigrantDirect rate)
If you're going to actually make 25 trades/mo, this is exceedingly hot. Otherwise, not so much. That 25k would earn you about $1262.50 in interest that year. Compare that to the value of the 360 (30x12) trades annually, which is $2520. This is the equivalent of 10.08% interest, and the value of the free trades probably is not taxable, whereas the money in a savings account would be, increasing the real value even more. At a 20% tax bracket, this is the equivalent of 12.6%.
If, however, you are not going to make 30 trades/month, you would need to average 180.35 trades/yr (about 15/month) to break even. Assuming the 20% tax bracket, the real earnings on the $1262.50 would be $1010. This would mean you would need to make 144.28 trades/yr (about 12/month). I would bet that most people do not trade this much.
This analysis leads me to conclude that this deal is hot for daytraders, but not for others.
You are assuming that BOA will not be paying any interest on the 25K+ balance held in the account...Is this the case?
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