There are 3 costs involved with investing in Bond ETFs which are:
Here is an explanation of each.
When you buy and sell most Bond ETFs you are charged a commission, which is the same as the commission you pay for buying and selling stocks. This is in the range of $8 to $10 for both the buy and the sell with the major online brokers. If you are transacting through a full service broker, the fee can range from $50 up to $100 or more.
The spread is the difference between the price where you can buy an ETF and where you can sell it. For most actively traded ETFs this amounts to a few pennies at most, and is therefore not really a consideration. For less actively traded ETFs however, the spread can be quite large, so it is something to be aware of if you move away from the mainstream bond ETFs.
Investors have to pay the company managing and administering the ETF for their services. This fee is calculated as a percentage of the assets invested in the ETF, over the course of a year. It is also a recurring fee, so it does not go away after the first year. According to Morningstar, the average bond ETF has an annual expense ratio of just 0.28%. However, half of bond ETFs had an annual expense ratio below 0.24%.
One of the things that you will often hear about Bond ETFs is that they are highly cost efficient. There are three reasons for this:
That depends on your situation. To learn how to choose the least expensive option for your situation, read our article on Bond Mutual Fund Fees vs. Bond ETF Fees.