Zecco Launches Zero Commission IRAs

Filed in archive Retirement on February 15, 2007

I did a little profile of Zecco, the free stock trading service, back in September when it was first launching. I was a bit skeptical of its chances, and still am, but I think a new product introduced yesterday could be a winner.

The product is a commission-free IRA. How does that work? Well, instead of your IRA being made up of mutual funds, it's made up of ETFs, or exchange-traded funds. If you don't know, ETFs are sort of like mutual funds but they trade like a stock, meaning you can buy and sell them on the open market. You can have ETFs that match the NASDAQ, ETFs that are all energy companies, etc. (Here's my previous attempt at explaining ETFs.)

The knock on ETFs has been that, because they trade like stocks, you end up paying commissions on purchases and sales of ETFs, thus potentially negating some of the advantages of ETFs, including their flexibility and potential tax advantages. (Mutual funds do not have commissions on buy/sell transactions, although mutual funds do have their inherent management fees to consider.)

However, because Zecco's whole promise is that you don't pay commissions on stock trades, its IRA product is giving you the opportunity to have an ETF IRA without the commissions. In other words, you can build an IRA with no fees and no commissions, thus allowing you to realize a greater gain than you could with any previous IRA on the market.

That's a pretty cool deal, and I think Zecco's going to get some love for it.