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Schwab Brokerage Lowers Expense Ratios, Beats Vanguard

This article was written by in Investing. 6 comments.


Here is some good news for investors. Schwab, competing for investment business with other low-cost mutual fund operations like Vanguard, Fidelity, and TIAA-Cref, has lowered the expenses on a number of their mutual funds.

The Schwab S&P 500 Index Fund (SWPIX), which competes directly with the Vanguard S&P 500 Index Funds (VFINX), now sports a net expense ratio of 0.09%, compared with Vanguard’s 0.16% (or 0.15% or 0.18%, depending on who you ask). Additionally, the minimum investment at Schwab is only $100. You will need $3,000 to open an account at Vanguard. Schwab’s Total Stock Market Index Fund (SWTSX) has also been reduced to 0.09%, which is lower than Vanguard’s expense ratio for the equivalent VTSMX of 0.16%.

Theoretically, the performance of an index fund “managed” by one company before fees should be identical to the returns provided by an equivalent fund “managed” elsewhere. With index funds, the fees matter because everything else is theoretically equal; lower expenses could save you many thousands of dollars over long stretches of time. With this news, I may consider at least investing new money with Schwab, and I will possibly consider moving some funds from Vanguard to Schwab.

I should point out that if you qualify for Vanguard’s Admiral Shares, your expense ratios will be lower than Schwab’s new rates. You need to have $100,000 in one mutual fund (or $50,000 in one fund and a ten-year history with that fund) to qualify.

Updated February 6, 2012 and originally published May 6, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 6 comments… read them below or add one }

avatar Matt SF

Schwab has been impressing me lately considering their cashback VISA, and now this. Might have to give them a second look.

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avatar James Fowlkes

Wow, this is great news and changes the way I will handle both mine and my clients’ accounts. Thanks for the update!

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avatar Madison

I use both Vanguard and Fidelity for their low fee funds. Definitely going to have to put Schwab on the spreadsheet to compare! I already have an account at Schwab for the checking account, so it will be an easy switch if I need to move some money around.

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avatar Jeremy

The low investment minimum is really nice. But most of the Fidelity Spartan funds have been cheaper than Vanguard for quite a while. Only drawback is their $10k minimum vs. Vanguard’s $3k. So the low minimum with Schwab for this low rate is going to be great for new investors looking to get inexpensive index funds without waiting to have a bunch of cash.

Hopefully the likes of Vanguard and Fidelity follow suit and lower their minimums in the future.

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avatar Luke Landes ♦127,373 (Platinum)

Jeremy: Thanks for bringing up Fidelity — I always seem to forget the qualities of the Spartan funds.

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avatar Andy

Close… Vanguard’s S&P 500 Index has a gross expense ratio of 0.18%. I was actually just looking at this a couple of minutes ago. https://personal.vanguard.com/us/funds/snapshot?FundId=0040&FundIntExt=INT

Not that it makes your point less valid…

I’ll have to check out Schwab. I’ve been using a Best Buy Rewardzone creidt card for a couple of years. I may check out Schwab’s card.

Edit: Just glanced at Schwab’s choice of Bond Index funds… their expense ratios looked higher than Vanguard’s. Switching is a pain in the butt anyways. I’ll stick with Vanguard…

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