Charles Schwab Slashes Mutual Fund Expenses, Making Investing More Affordable

You know, for all the things Charles Schwab can’t do—like, say, stopping the stock market from behaving like it’s had one too many espressos—they sure can help you hang on to a bit more of your own cash. That’s right: Schwab has just announced they’re giving their mutual fund expense ratios the Marie Kondo treatment, with big reductions on equity index funds and across their whole mutual fund lineup for us everyday investors.

Pretty good timing, too. This comes not long after Morningstar basically predicted 2009 would be the year mutual fund fees would get even heavier (and who says crystal balls don’t exist?).

Schwab Simplifies Pricing Structure for Individual Investors

For anyone who remembers when mutual fund prices seemed more secretive than grandma’s cookie recipe, Schwab’s new approach is basically daylight. Now, everyone poking around in the same fund pays the same expense ratio—whether you’re rolling in with just the basic $100 or making it rain with a much heftier deposit.

Want some specifics? The Schwab Dividend Equity Fund has dropped its expense ratio from a painful 1.04% to a far more palatable 0.89% for smaller accounts. Used to be, you needed a $50,000 check to unlock that rate. Even better deals await in other funds: toss some change into the Schwab Fundamental U.S. Large Company Index Fund and your fees fall from 0.59% to 0.35%.

Schwab Sets the Benchmark for Low-Cost Index Funds

The race is on, folks. With fund giants elbowing each other to see who can offer you the lowest expenses (and with ETFs like SPDR S&P 500 pulling assets like a magnet from traditional index funds), Schwab is now strutting around with the lowest fees in three big index fund categories: S&P 500, total U.S. stock market, and small-cap stocks.

Take their S&P 500 Index Fund. Schwab has chopped the expense ratio for small accounts from 0.36% to an almost negligible 0.09%. Need a comparison? Vanguard 500 Index Fund asks for a $3,000 minimum and charges 0.15% for most folks, while the Fidelity Spartan 500 Index Fund backs it up with 0.10%—but only if you have $10,000 to spare.

“These aren’t short-term promotions,” promises Peter Crawford, Schwab’s bigwig for investment management services. Translation: You won’t wake up to sticker shock a month from now—these cuts are here for the long haul.

How Schwab’s Expense Ratios Stack Up

Alright, let’s keep it honest: if you’ve got Scrooge McDuck levels of cash—think $100,000 or more—Vanguard 500 Index Admiral Shares (say that three times fast) only charge a skinflint 0.07%. Or maybe you’ll dabble with the SPDR S&P 500 ETF at 0.0945%, but don’t forget those pesky brokerage commissions tacked on with every trade.

What Do These Lower Fees Really Mean for Investors?

Sure, lower fees won’t magically reverse last year’s market nosedive, but here’s the silver lining: you’ll get to keep more of what you actually earn. Let’s crunch some numbers. Plop $10,000 into Schwab’s S&P 500 index fund at their shiny new 0.09% ratio, and you’re down just $9 a year in fees. Vanguard’s comparable fund? $15. Is $6 a year “life-changing” money? Not exactly. But it adds up, especially when the clock is on your side and your investment horizon is long enough to qualify for frequent flyer miles.

Could This Spark More Price Competition?

So, what’s the takeaway? Schwab might just have fired the opening salvo in a shiny new mutual fund price war. If that means more fund companies competing to save you even more pennies (and dollars), let’s hope their rivals take note. After all, in this game, the winner is you—the savvy, fee-conscious investor.