What needs to be considered when choosing the right broker?

This short article gives you some hints what you need to be aware of while
opening a broker account. I hope this helps some of you to avoid the mistake I did at the beginning.

As I started with dividend investing about 7 months ago I was quite naive when it came to choosing the right broker. I was doing the probably most common mistake beginners do, opening an account at your house bank.

The reasons why this was a mistake are:

  •  the fees you have to pay for the transactions,
  •  the fees for the dividends you receive or even worse
  •  the foreign exchange fees.

Furthermore the administrative support is not that good compared to a real broker. So for example do you have to fill in a form for withholding tax exemption or is it already done by the bank. Normally at the house banks you have to do by yourself.

I will give you an example what happened to me at the beginning:

I received dividends from Procter Gamble of let say 22 USD exchange rate 1.1:

As I opened my account no one told me that I have to fill in a form for the withholding tax exemption. So first I had to pay a withholding tax of 30 % instead of 15% plus the Austrian rate of 10% so in total 40%.

Of the 20 EUR were after tax only 12 EUR left, now the transaction fee of 1,45 EUR and the foreign exchange fee of 4 EUR will be deducted as well. At the end I only received an amount of 6.55 EUR, instead of the 15 EUR I am receiving now at my current broker. There I am not getting charged with a transaction fee when I receive dividends and I do not have to pay any foreign exchange fee. Also the withholding tax form was filled in by the bank automatically.

Through these experiences I have learned that not only the right stock is important also the right broker is important, because the fees etc. can reduce the dividend yield significantly.

Conclusion

So before you choose a broker make sure how much fees and what kind of fees you have to pay when:

  • Buying stocks
  • Receiving dividends
  • Are there any foreign exchange fees charged

Also the following point is very important:

  • How is the administrative support

Normally the brokers at the so called direct banks are much cheaper than the ones from the classical house banks, but even there you will find some differences in the fees.

What were you experiences with the choice of the right broker? Do you have any other hints?

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