In November 2009, Charles Schwab launched a series of ultra-low fee exchange-traded funds (ETFs). Among them, the Schwab U.S. Broad Market ETF (SCHB) has an expense ratio (ER) of 0.08%, beating the equivalent from low-cost fund leader Vanguard by 0.01%. Though the difference may not be that significant for individual investors, it did show the significance the role fees play in attracting new and existing customers.
Shortly after the ETF offers, Schwab started a broker war by lowering online stock trade commission to $8.95/trade and letting its customers trade Schwab ETFs for free through their accounts with the broker. The move was soon followed by similar changes at two largest mutual fund companies, Fidelity and Vanguard, which both started to offer commission-free ETFs (iShare ETFs at Fidelity and Vanguard ETFs at Vanguard) to their own customers. Though I use discount brokers such as Scottrade and TradeKing to trade stocks and ETFs and the costs are generally lower than costs of trading equities with Schwab, Fidelity, or Vanguard, the commission-free offers are nonetheless very attractive.
But Schwab, which has led the last round of fee and commission cut, isn’t done yet. Yesterday, the broker announced that it is cutting the expense ratios of its ETFs again. Schwab ETFs included in the latest fee reduction include:
Schwab U.S. Broad Market ETF from 0.08% to 0.06%
Schwab U.S. Large-Cap Growth ETF from 0.15% to 0.13%
Schwab U.S. Large-Cap Value ETF from 0.15% to 0.13%
Schwab U.S. Small-Cap ETF from 0.15% to 0.13%
Schwab International Equity ETF from 0.15% to 0.13%
Schwab Emerging Markets Equity ETF from 0.35% to 0.25%
Since expense ratio is the fee charged by the fund company to operate the fund, it directly relates to the overall cost of owning a fund, which also includes commissions. Now that you can get commission-free ETFs from either Schwab, Fidelity, or Vanguard (of course, if you have $25,000 or more in your account, you can trade any stock or ETF for free with Zecco), the cost of the fund itself that you own determines the fee you will need to pay. The lower the ER, the lower your cost.
After the fee cut, no any other ETF in the same category has lower expense ratio than those Schwab funds. It would be interesting to see whether Fidelity or Vanguard follows suit or not.
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