Treasury ETFs: Choosing Between VGIT's Cost Efficiency and FBND's Income Potential

When evaluating treasury ETFs and broader fixed-income options, two names frequently emerge as top contenders for core bond exposure: Vanguard’s VGIT and Fidelity’s FBND. While both serve fixed-income portfolios, they employ fundamentally different strategies that can significantly impact your returns and risk profile.

The Cost Factor: Where Treasury ETF Simplicity Pays Off

The most striking difference between these two funds lies in their expense structure. VGIT operates at just 0.03% annually—one of the lowest fees in the fund industry. To put this in perspective, on a $10,000 investment, you’re paying merely $3 per year. FBND’s 0.36% expense ratio, while still reasonable by industry standards, represents a tenfold increase in annual costs.

Over decades of investing, this seemingly small difference compounds significantly. VGIT’s laser-focused approach on intermediate-term U.S. Treasury securities translates directly to lower operational costs. FBND, managing a diversified portfolio of 2,742 bonds across government, corporate, and other sectors, naturally incurs higher administrative expenses.

For cost-conscious investors prioritizing treasury ETFs specifically, VGIT’s efficiency is nearly unbeatable.

Risk and Return: Understanding the Trade-Off

The historical performance data reveals each fund’s risk character. Over five years, VGIT experienced a maximum drawdown of 18.91%, while FBND’s decline reached 21.24%—a meaningful 2.33 percentage point difference during market stress.

However, this additional volatility came with a yield incentive. FBND currently offers a 4.7% dividend yield compared to VGIT’s 3.8%—a 0.9 percentage point premium. This premium exists precisely because FBND holds riskier assets. Corporate bonds and government securities carry different credit risks than the pure Treasury exposure VGIT provides.

On a one-year basis (as of early 2026), VGIT returned 4.2% while FBND delivered 3.8%, suggesting that Treasury-focused treasury ETFs performed better in this particular period. Yet over a longer five-year horizon, a $1,000 investment in VGIT grew to $864 compared to FBND’s $852—a modest advantage highlighting how expense ratios matter over time.

What’s Inside Each Fund: Treasury vs. Diversification

VGIT’s simplicity is its defining feature. The fund invests exclusively in intermediate-term U.S. Treasury securities, with recent Treasury notes and bonds comprising its entire portfolio. This focus translates to a beta of just 0.16, indicating minimal correlation with broad market volatility. For investors seeking pure, government-backed credit quality within treasury ETFs, this approach delivers precisely that.

FBND takes the opposite path with sector diversification. Its top holdings include corporate bonds from Bank of America, JPMorgan Chase, and Goldman Sachs—though each represents less than 1% of the portfolio. This 2,742-bond portfolio blends government backing with corporate yield, accepting additional credit risk in exchange for income enhancement. The fund’s beta of 0.28 reflects this increased sensitivity to market movements.

By assets under management, VGIT dominates with $39.0 billion in AUM versus FBND’s $23.8 billion, reflecting its appeal to conservative fixed-income investors.

Matching Strategy to Your Investment Goals

Choosing between these treasury ETFs depends entirely on your income needs and risk tolerance.

Choose VGIT if you prioritize: Minimal costs, maximum simplicity, government credit quality, or if you’re building a core bond allocation that should withstand market turbulence. This treasury ETF works particularly well for conservative investors, retirees focused on capital preservation, or those using bonds as portfolio ballast.

Choose FBND if you prioritize: Higher current income, broader diversification beyond pure government securities, or if you’re comfortable accepting additional volatility for yield enhancement. This approach suits income-focused investors who can tolerate moderate drawdowns.

Both funds offer legitimate pathways to fixed-income exposure—your choice simply reflects whether you prioritize the fortress-like security of U.S. Treasuries or the income boost of a diversified bond portfolio.