What is a bond ETF?
When you buy shares of a bond ETF, you buy a piece of a bond portfolio. However, unlike individual bonds, most bond ETFs don’t have a maturity date. And ETFs trade on an exchange, like stocks, so you can buy or sell them at any time during the trading day.
Why would Schwab recommend bond ETFs?
Bond ETFs can give investors a way to diversify in many segments of the market through a single investment or a handful of investments. Generally, bond ETFs have lower transaction costs than individual bonds, and their prices are quoted throughout the day like stocks.
What does Schwab charge to trade bond ETFs?
ETF Commissions per Trade at Schwab
|Online Trades||Automated Phone Trades||Broker-Assisted Trades|
$5.00 service charge
$25.00 service charge
$4.95 + $5.00 service charge
$4.95 + $25.00 service charge
Take a closer look at the benefits.
Bond ETFs generally invest in a large number of individual bonds from different issuers. This diversity helps protect an investor if the bonds from a single issuer either fall in value or default.
Bond ETFs trade between investors on an exchange. For many ETFs, those trades don’t require changes to the underlying securities the fund holds (unlike mutual funds), so there are generally fewer taxable consequences for the fund. In addition, ETFs that track an index generally change less over time, which may keep capital gains at a minimum.
Holdings are disclosed on a daily basis, so investors know exactly what securities their ETFs hold.
Like stocks, bond ETFs trade throughout the day and can use limit and stop-limit orders.
Bond ETFs typically have lower operating expense ratios (OERs) than bond mutual funds, especially actively managed funds. In addition to the OER, investors incur commission1 and bid-ask spread costs. Schwab ETFs and Schwab ETF OneSource™ trades are commission-free. Schwab offers commission-free online trades in a Schwab account.
Review the risks.
Bond ETFs are subject to many of the same risks as most fixed income securities, such as interest rate, credit, liquidity, reinvestment, inflation (or purchasing power), and market and event risks. In addition, investors face volatility and price-to-net-asset-value risk.
Leveraged bond ETFs or ETFs with a more narrow focus may experience more severe price movements than traditional bond ETFs.
Price to net asset value
The market price of a bond ETF could vary from the net asset value (NAV) of the underlying securities. While the share value is usually close to the NAV, in some cases the price may be more or less than the underlying value per share.
The risk that a security will default or that its credit rating will be downgraded, resulting in a decrease in value for the security. The measurement of credit risk usually takes into consideration the risk of default, credit downgrade, or change in credit spread.
The relative ability of a security to be sold without substantial transaction costs or reduction of value. The harder it is to sell a security or the greater the loss in value resulting from a sale, the greater the liquidity risk.
The risk that cash flows from an investment will be reinvested when interest rates are lower, resulting in a possible reduction in cash flow. To mitigate reinvestment risk, an investor can purchase non-callable bonds, which are not subject to early redemption, and/or ladder bond maturities at different intervals over time.
Inflation (purchasing power)
The risk that inflation will erode the real return on investment. This occurs when prices rise at a higher rate than investment returns and, as a result, money buys less in the future. The risk is greatest if you’re investing over long periods of time. Inflation-protected securities can be used to mitigate inflation risk.
Market and event
The risk that a change in the overall market environment or a specific occurrence such as a political incident will have a negative impact on the price/value of your investment.
Find bond ETFs.
ETF Select List®
Schwab's quarterly updated ETF Select List is designed to inform and support self-directed investors searching for the right ETFs to fit individual investment needs and goals. The ETF Select List provides prescreened, low-cost bond ETFs representing 16 categories.
Each Schwab ETF provides exposure to a distinct asset category, so they're designed to be core building blocks for a diversified portfolio. And Schwab clients trade them commission-free online3 in their Schwab account.
Bond ETF Screeners
Find and filter fixed income ETFs using criteria including category, yield, and expenses.
Go even deeper
Schwab clients can view ETF quotes, compare investments, and review industry-leading research all in one place.
Take advantage of resources to help you make decisions.
Talk to a specialist
Get assistance from over 100 Schwab Fixed Income Specialists, who draw on an average of over 21 years of experience.4
Do the research
Access commentary that provides you with greater insight.
Attend a workshop
Learn more through educational workshops at your local Schwab branch.
We're here to help
Clients of independent investment advisors: You may also contact your advisor or call Schwab Alliance at 800-515-2157.
1. Conditions apply: Trades in ETFs available through Schwab ETF OneSource (including Schwab ETFs) are available without commissions when placed online in a Schwab account. Service charges apply for trade orders placed through a broker ($25) or by automated phone ($5). An exchange processing fee applies to sell transactions. Certain types of Schwab ETF OneSource transactions are not eligible for the commission waiver, such as short sells and buys to cover (not including Schwab ETFs). Schwab reserves the right to change the ETFs we make available without commissions. All ETFs are subject to management fees and expenses. Please see Charles Schwab Pricing Guide for additional information.
2. Restrictions apply: The $4.95 flat commission does not apply to foreign stock transactions, large block transactions requiring special handling, employer-negotiated commission schedules applicable to equity compensation transactions, or restricted stock transactions. Employee equity compensation transactions are subject to separate commission schedules.
3. Restrictions apply: Online trades of Schwab ETFs are commission-free at Schwab, while trades of third-party ETFs are subject to commissions. Broker-assisted and automated phone trades are subject to service charges. A minimum deposit of $1,000 is required to open most Schwab brokerage accounts. Waivers may apply. See the Charles Schwab Pricing Guide for more details. Commission-free trades are available through the broker-dealer subsidiary of The Charles Schwab Corporation, Charles Schwab & Co., Inc., Member SIPC. All ETFs are subject to management fees and expenses.
4. As of January 2016.
Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges, and expenses. You can request a prospectus by calling 800-435-4000. Please read the prospectus carefully before investing.
Past performance does not guarantee future performance.Investment returns and principal values will fluctuate, and shares, when redeemed, may be worth more or less than their original cost.
Unlike mutual funds, shares of ETFs are not individually redeemable directly with the ETF. Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV).
Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors.
This information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner, or investment manager.
Charles Schwab & Co., Inc., Member SIPC, receives remuneration from fund companies participating in the Mutual Fund OneSource® service for recordkeeping and shareholder services and other administrative services. Schwab also may receive remuneration from transaction fee fund companies for certain administrative services.