A good expense ratio depends on the type of ETF, but most investors should look for funds under 0.20%
An expense ratio is the annual cost of owning an ETF, expressed as a percentage of your investment. If an ETF has a 0.10% expense ratio and you own $10,000 of it, you pay $10 per year in fees. The lower the ratio, the more of your money stays invested and working for you instead of going to the fund company.
What counts as "good" varies by what the ETF tracks. A broad U.S. stock index fund charging 0.03% to 0.10% is typical and reasonable. A specialized fund tracking a narrow sector or international market might charge 0.30% to 0.50% and still be competitive. The key is comparing funds that track the same thing — a 0.15% ratio is excellent for a bond fund but expensive for a total stock market fund.
Most ETFs have become cheaper over the past decade as competition increased. If you see a ratio above 0.50% for a basic index fund, you are likely paying more than necessary. For actively managed ETFs (where a manager picks holdings rather than following an index), ratios typically run 0.40% to 1.00%, which is still usually lower than actively managed mutual funds.
Key Takeaways
- Expense ratios below 0.20% are considered good for most index-tracking ETFs, with many broad market funds available under 0.10%.
- Compare ratios only between ETFs that track the same index or asset class, since specialized funds naturally cost more to run.
- A difference of 0.10% may seem small but compounds over decades — on a $50,000 investment, 0.10% versus 0.20% costs you roughly $500 over 20 years.
- Actively managed ETFs typically charge 0.40% to 1.00% and should be compared against other actively managed funds, not passive index funds.
How expense ratios compare across different ETF types
The benchmark for a good ratio shifts depending on what the fund holds. U.S. stock index ETFs are the most competitive category — you can find total market or S&P 500 tracking funds for 0.03% to 0.08%. International stock ETFs typically run 0.08% to 0.20%. Bond index ETFs usually fall between 0.03% and 0.15%.
Specialty categories cost more because they track smaller markets or require more active oversight. Real estate ETFs (REITs) often charge 0.10% to 0.40%. Commodity ETFs and sector-specific funds may run 0.30% to 0.70%. Emerging market ETFs typically charge 0.10% to 0.40% because the underlying markets are harder to trade efficiently.
If you are comparing two ETFs that track the same index and one costs significantly more, there is usually no reason to choose the expensive one. The cheaper fund will deliver nearly identical returns over time, minus the extra fee you are paying.
Why small differences in expense ratios matter over time
A 0.10% difference sounds trivial, but it compounds. Imagine you invest $50,000 in an ETF earning 7% annually. With a 0.10% ratio, you pay $50 the first year. With a 0.20% ratio, you pay $100. After 20 years, assuming the same growth rate, the cheaper fund will have roughly $500 more than the expensive one — just from the fee difference alone.
The longer you hold an ETF, the more the ratio matters. Young investors with decades ahead benefit most from choosing low-cost funds. Even a 0.05% difference adds up when compounded over 30 or 40 years. This is why many financial advisors recommend starting with the lowest-cost option in each category.
That said, an extremely low ratio should not be your only factor. A fund that is too new, too small, or poorly constructed might charge less but deliver worse returns. Look at the expense ratio alongside the fund's size, trading volume, and how closely it tracks its index.
Red flags: when an expense ratio is too high
If you see an index-tracking ETF charging more than 0.30%, ask why. Sometimes there is a legitimate reason — the fund might track an obscure international market or a very narrow sector. But often, a high ratio straightforward means you are paying for a product that has a cheaper alternative.
Actively managed ETFs are a different story. These funds employ managers to pick holdings, so higher fees are expected. But even then, ratios above 1.50% are rare and usually not justified. Compare actively managed funds against other actively managed funds, not against passive index ETFs.
Another red flag is a fund with a high ratio and poor performance. If an ETF charges 0.80% and underperforms its benchmark, the fee is eating into returns without adding value. Check the fund's fact sheet or prospectus to see how it has performed against its stated index over the past three to five years.
How to find and compare expense ratios
Every ETF's expense ratio is listed on the fund company's website and on financial data sites like Morningstar, Yahoo Finance, and your brokerage platform. When you search for an ETF by ticker symbol, the ratio appears in the fund summary, usually labeled "expense ratio" or "ER".
Most brokerages let you filter ETFs by expense ratio, making it straightforward to see all available options in a category sorted by cost. If you are comparing two funds, pull up their fact sheets side by side. The expense ratio is always there, along with the fund's size, trading volume, and how closely it has tracked its index.
Be aware that the ratio shown is the annual cost, not a one-time fee. You do not pay it separately — it is deducted from the fund's returns automatically. This is different from a trading commission, which you may pay when you buy or sell shares.
When a slightly higher ratio might make sense
In rare cases, a fund with a higher ratio can still be the right choice. If a low-cost ETF is very new and has almost no trading volume, buying and selling shares might be difficult or expensive due to wide bid-ask spreads. An older, more established fund with slightly higher fees but better liquidity might cost you less in practice.
Similarly, if you are investing a small amount and plan to hold for only a few years, the difference between a 0.10% and 0.20% ratio matters less than having a fund that is straightforward to trade. But for most long-term investors with moderate to large positions, the lowest-cost option in each category is the sensible choice.
Actively managed ETFs with strong track records might justify higher fees if the manager has consistently beaten the index by more than the fee difference. This is rare and hard to predict, but it is worth checking before dismissing a fund solely on cost.
Frequently Asked Questions
Is 0.10% a good expense ratio?
Yes, 0.10% is considered good for most index-tracking ETFs, especially broad market funds. Many U.S. stock index ETFs charge 0.03% to 0.08%, so 0.10% is still competitive. For bond or international funds, 0.10% is very good. For specialty funds like commodities or emerging markets, it would be excellent.
What is the average expense ratio for an ETF?
The average varies by category. U.S. stock index ETFs average around 0.08% to 0.12%. Bond index ETFs average 0.05% to 0.10%. Actively managed ETFs average 0.50% to 0.80%. Specialty and sector ETFs average 0.30% to 0.60%. These are rough ranges and change as new, cheaper funds enter the market.
Should I always choose the ETF with the lowest expense ratio?
Usually yes, but not always. Compare funds that track the same index or asset class. A fund that is too new or has very low trading volume might cost you more in bid-ask spreads than you save on fees. Check the fund's size and liquidity before choosing based on ratio alone.
Do I pay the expense ratio as a separate fee?
No. The expense ratio is deducted from the fund's returns automatically. You do not write a check or see a bill. If an ETF earns 7% and has a 0.10% ratio, you receive 6.90% in net returns. This is different from a trading commission, which you may pay when you buy or sell shares.
Can an ETF's expense ratio change?
Yes, but rarely. Fund companies occasionally lower ratios to stay competitive or raise them if costs increase. You will be notified if a ratio changes. For most established ETFs, the ratio stays the same for years. Always check the current ratio before buying, as it may have changed since you last looked.