What is considered a low expense ratio?

For an index fund, an expense ratio under 0.10% is considered very low, and the cheapest broad index funds now charge between 0.00% and 0.04%. For an actively managed fund, under about 0.50% is low for that category, though it's still many times more than a comparable index fund.

Is a 1% expense ratio too high?

For most funds, yes. A 1% expense ratio means you pay $100 a year for every $10,000 invested, every year, regardless of performance. Over a few decades that compounds into a very large sum. A 1% fee is only defensible for a genuinely distinctive, well-run active strategy you've deliberately chosen — never for a plain index fund, where equivalents cost a fraction.

Does a higher expense ratio mean better returns?

No. The evidence points the other way: lower-cost funds tend to outperform higher-cost funds in the same category over time, because the fee is a guaranteed subtraction from returns while the manager's edge is not guaranteed at all. Expense ratio is one of the few reliable predictors of long-run relative performance.

Guide

What Is a Good Expense Ratio?

Last updated October 31, 2026

Short answer: for an index fund, anything under 0.10% is excellent and under 0.20% is fine. For an actively managed fund, under about 0.50% is defensible and anything approaching 1% needs to justify itself. Here's the longer answer.

The expense ratio is the annual fee a fund charges, expressed as a percentage of the money you have invested. A fund with a 0.10% expense ratio keeps $10 per year from every $10,000 you hold; a fund at 1.00% keeps $100. You never see it leave your account — it's quietly deducted from the fund's assets before your return is calculated — which is exactly what makes it so easy to ignore and so expensive to underestimate.

The quick benchmarks

Here's what "good" means, by fund type:

Broad index funds — under 0.10% is excellent. The cheapest total-market and S&P 500 funds now charge between 0.00% and 0.05%. For reference, VTSAX charges 0.04%, FXAIX charges 0.015%, and FZROX charges 0.00%. If a plain index fund charges more than about 0.20%, there's almost always an identical cheaper one.
Bond and international index funds — under 0.15% is fine. Slightly higher than US stock index funds, but not by much. VBTLX runs 0.05%.
Actively managed funds — under 0.50% is defensible. Active funds cost more because a person (or team) is making decisions. A few are worth it. But the bar rises with the fee: at 0.50% a manager must beat the index by half a point a year just to tie it; at 1% they must beat it by a full point, forever.

Why this one number matters so much

Two reasons. First, it's one of the only fund facts that is knowable in advance. Nobody can tell you which fund will return the most next year, but anyone can tell you which one costs the least — today, with certainty. Second, it compounds. A fee doesn't just cost you the fee; it costs you all the growth that fee would have earned, every year, for as long as you hold the fund. Over a 30-year career the gap between a 0.04% fund and a 0.75% fund routinely runs into six figures on an ordinary retirement balance.

The decades of industry data land on an uncomfortable finding for expensive funds: cost is one of the best predictors of future relative performance, and it runs in the obvious direction — cheaper funds tend to win. Not because cheap managers are smarter, but because the fee is a certain subtraction and the outperformance is a maybe.

See it for yourself

Our expense ratio calculator lets you put two fees side by side over a career. Drag a fund from 0.04% to 0.75% and watch the ending balance drop — the number tends to change how people shop for funds.

When a higher fee is actually fine

Three honest exceptions. A target-date fund around 0.08–0.15% is a bargain for a complete, self-rebalancing portfolio in one ticker. A genuinely distinctive active bond fund can earn its keep, since bonds are where active management has its least-bad record. And a well-run, low-cost active fund you've deliberately chosen — and sized small — is a defensible slice of a portfolio, not a scandal. What's never fine is paying an active-fund fee for closet-index exposure you could buy for 0.04%.

How to check a fund's expense ratio

It's on every fund's prospectus and provider page, and on every review on this site — it's the first number we show, because it's the first number that should decide anything. When you're comparing two similar funds, the expense ratio is usually the tiebreaker that matters; see the cheapest option in each category on our best index funds page.

Bottom line: a good expense ratio is a low one, and "low" means under 0.10% for index funds and under about 0.50% for active funds. It's the rare investing decision with no trade-off — a cheaper index fund isn't riskier than its expensive twin, it's the same thing for less — so it's the first place to look and the easiest win you'll ever get.

Nathan Blake · Editor, Mutual Fund Reviewer

Nathan Blake has spent fifteen years writing about index investing, retirement accounts, and the quiet math of expense ratios. He is not a licensed financial advisor, and nothing on this site is personalized investment advice — he is an editor who reads prospectuses so you don't have to. His own portfolio is three index funds and a rebalancing calendar reminder.

This guide is general education and editorial opinion, not personalized investment advice. Fund figures are drawn from provider documentation and last verified October 31, 2026; confirm against the official prospectus before investing.