How to avoid transaction fees on mutual funds

Never pay transaction fees

It’s a wonderful time to be an investor in the US. Technology and competition has enabled brokerages to offer tons of zero transaction fee investments so that you never need to pay any sort of load or fee when you buy or sell a stock or fund.‎

Yet still I’ve seen a rash of new investors paying exorbitant transaction fees when they purchase a mutual fund. Often times it comes with the best intentions. A young investor hears about the amazing low fee Vanguard index funds, and they go to their brokerage to buy one. But then on checkout they’re encountered with a transaction fee (as shown in this screenshot). If you see a transaction fee, stop. You don’t need to pay it.‎

The screenshot on this image is from buying a Vanguard mutual fund inside a Fidelity account. Fidelity has no obligation to give easy or free access to their competitors funds, so they chunk on the huge fee. (Vanguard charges $20 if you try to buy a Fidelity fund through their website)‎.

So what to do? Usually the best option is to just find the equivalent fund that’s offered for no fee through your brokerage. If you have a Fidelity account and you’re trying to buy VTSAX you’ll be charged $75. But you can buy FSKAX or FZROX for free, and they’re functionally identical to VTSAX.‎

You also may see a fee if you have a TD Ameritrade account and you try to buy a mutual fund. TD offers free trades on ETFs, so a good option may be to just buy the ETF version of whatever index fund you were trying to buy! (i.e. Vanguard’s VTI instead of VTSAX)‎

The other option is to switch brokerages. If you really have your heart set on VTSAX, go open a Vanguard account. If you want to buy Schwab’s target date index funds, do it inside a Schwab account. The transfer process is a small pain in the butt, but will pay off in the long run!‎

As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.‎

-Jeremy‎

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Jeremy Circle

Hi, I’m Jeremy! I retired at 36 and currently have a net worth of over $4 million. 

Personal Finance Club is here to give simple, unbiased information on how to win with money and become a multi-millionaire!