BoA Expanding Its Free Trade Program

Bank of America is expanding its $0 trade program to Alabama, DC, Florida, Georgia, Maryland, North Carolina, South Carolina and Virginia, according to Reuters. Customers who have $25,000 or more in all asset across BoA deposit accounts, including checking, savings, and CDs, can get up to 30 free trades per month. The bank also hopes to make the program available across the nation early next year.

While I like the idea of commission-free trading, I don’t think I will jump ship any time soon (if I jump at all), mainly because they set the bar too high ($25K) and what I get in return is too low. For example, according to BoA website, they only offer a rate of 1.5% APY for money market account with a balance of $25,000. Who’s going to switch from 5.05% to a mere 1.5% just for a couple of free trades anyway? Wall Street Transcript has some comments on BoA’s free trade program yesterday and here’s part of the assessment:

But to convince someone to bring over an additional, say, $20,000 to their account to achieve this free trading, they would have to be predominantly an active trader. If you think about the typical Main Street investor (and we look at the statistics for all the big discount brokers), the typical investor is trading seven to 10 times a year. Some people trade even less than that, but when you carve it into active traders and then your typical Main Street investors, those investors are trading only seven to 10 times a year. So these people might save $10 eight times a year. They are going to save $80 on commissions. In order to get that $80 savings, they’ve got to have $25,000 with BofA. As a BofA customer, I know that BofA is never all that generous in terms of their interest rates. Now, I think you can find accounts with BofA that might be higher yielding, but generally speaking, you are going to give up some interest income by shifting to BofA because their accounts just don’t have that great a yield, particularly their checking accounts and things like that, which are more transaction oriented. So with $20,000, if your rate is off by 1%, that would be a $200 loss in terms of interest income that you may have gotten from a different broker/dealer who had a better rate for you. Of course, it only goes up if the rate differential is higher than that.

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