A Guide to Ultra Short-Term Bond ETFs

Learn about these alternatives to high yield savings accounts and money market funds.

ETF
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Reviewed by: Kent Thune
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Edited by: Ron Day

When the Federal Reserve hiked the top end of its benchmark interest rate to 5.5% in July 2023, the federal funds rate reached its loftiest level in more than two decades. 

The move reverberated across financial markets, pushing stock and bond prices down while investors worried about whether high interest rates would spark a recession in the U.S. 

Still, it wasn’t all doom and gloom. The hike—along with the ten other rate increases the Fed made since March 2022—worked to bring inflation down from a four-decade high. 

Not only that, savers for the first time in years could earn significant interest on their cash. 

The federal funds rate, or the rate that banks charge to lend money to one another overnight, affects other interest rates across the economy. Those include rates on Treasury bonds, mortgages and credit cards. 

Let’s not forget bank accounts. A rising fed funds rate boosts the interest that banks pay on checking and savings accounts, which is one of the primary avenues through which people benefit from higher interest rates.  

Bank Accounts

Today, seven months after the Fed’s last hike, the federal funds rate remains near 5.5%. And anyone with a checking or savings account is likely earning more interest than they were a few years ago.  

But simply plopping your cash in an ordinary bank account probably isn’t maximizing the potential interest that you can earn. 

According to the FDIC, the average checking account in the U.S. is still only paying 0.07% APY, while the average savings account is earning only 0.46%—figures that are well below the 5.5% federal funds rate.  

In order to earn more, you can turn to high-yield savings accounts, which in many cases, are paying more than 5%. But not every bank offers these accounts. 

Certificates of deposit (CDs) are another product offered by banks that can generate high interest rates, but they come with the drawback of having to lock up your money for weeks, months or even years.  

All bank accounts also have limits on the amount of money that is insured by the FDIC, which is an important consideration for those looking to earn interest on amounts in excess of those caps. 

Fortunately, bank accounts aren’t the only way to take advantage of high interest rates. Certain financial products offer high interest rates with little to no risk, as well as no limits on the amount you can invest.   

Money Market Funds

The money market fund is the most popular among high interest rate, low risk options. With $6 trillion in assets under management, money market funds are used widely by both ordinary people and businesses.  

These funds usually invest in Treasury bills, repurchase agreements and other assets backed by the U.S. federal government, though some invest in riskier securities without a government guarantee.  

Money market funds are known for offering a stable $1 net asset value, a feature that’s compelling for those looking for a savings account alternative.

Money market funds are a type of mutual fund and they’re great at what they do. There’s nothing exactly like them in the ETF world, but there’s something that’s closely related: the ultra-short-term bond ETF. 

Ultra-Short-Term Bond ETFs

Unlike money market funds, ultra-short-term bond ETFs don’t have stable net asset values; their prices can and do fluctuate with interest rates. That said, those fluctuations are extremely minor.  

Like their mutual fund counterparts, these exchange-traded funds hold debt with maturities of one year or less.  

These ETFs largely hold the same securities as their mutual fund counterparts, and those securities have very little interest rate risk.  

Today, there are around 44 of these ETFs listed in the U.S. and they collectively have $140 billion in assets under management.  

That’s a fraction of the money invested in money market funds, but assets are growing fast.  

Over the past year, over $16 billion has flowed into ultra-short term bond ETFs, primarily those that invest in Treasury bills. 

Plethora of Ultra-Short-Term Fund Choices

The largest ultra-short-term bond ETFs on the market today include the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL), the JPMorgan Ultra-Short Income ETF (JPST), the iShares 0-3 Month Treasury Bond ETF (SGOV) and the iShares Short Treasury Bond ETF (SHV), each with more than $18 billion in AUM. 

BIL, SGOV and SHV invest in Treasury bills of varying maturities, making them ultra safe. They’re each yielding more than 5%, a rate that will fluctuate based on what the Federal Reserve does with the fed funds rate. 

On the other hand, JPST aims to generate a little more yield by investing in riskier debt, such as that issued by corporations.  

With dozens of ultra-short-term bond ETFs on the market, investors must do their due diligence to determine which product is right for them. 

Check out etf.com’s Ultra-Short-Term Bond ETF topics page for a full list of all of the funds in this category that are available on the market today. From there, you can click through to individual fund pages to learn about specific ETFs.

Largest Ultra-Short-Term Bond ETFs 

TickerFund NameAUMExpense Ratio
BILSPDR Bloomberg 1-3 Month T-Bill ETF$31.50B0.14%
JPSTJPMorgan Ultra-Short Income ETF$22.46B0.18%
SGOViShares 0-3 Month Treasury Bond ETF$18.44B0.07%
SHViShares Short Treasury Bond ETF$18.04B0.15%
PULSPGIM Ultra Short Bond ETF$5.88B0.15%
ICSHBlackoRck Ultra Short-Term Bond ETF$5.87B0.08%
GBILGoldman Sachs Access Treasury 0-1 Year ETF$5.74B0.12%
VUSBVanguard Ultra-Short Bond ETF$4.37B0.10%
BSCOInvesco BulletShares 2024 Corporate Bond ETF$3.66B0.10%
TBILUS Treasury 3 Month Bill ETF$2.95B0.15%

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