Bond prices have been volatile in recent years as the Federal Reserve hiked interest rates to combat high inflation, but with interest rate cuts suspended, investors could still take advantage of the attractive yields of short-term bonds.
Here are some things you need to know about short-term bond funds and some of the best things to consider in your portfolio.
What are short-term bonds?
Short-term bond funds are mutual funds and exchange trade funds (ETFs) that normally invest in government and corporate bonds with maturities of less than five years. Bonds that take shorter time to maturity are less sensitive to interest rate changes than long-term bonds. In other words, investors don’t suffer much when interest rates rise. Don’t forget that interest rates and bond prices move in the opposite direction. So, as interest rates rise, bond prices drop and vice versa.
Short-term bond fund investors earn yields. This measures the income generated by portfolio bonds compared to current market prices.
Who should invest in short-term debt?
Short-term bond funds may make sense for many different investors, but are especially suitable for those who save short-term investment goals. You can invest in short-term debts if you think you will need over the next 3-5 years.
Short-term bonds are a good way for investors to earn revenue beyond what they can earn from traditional savings accounts without being exposed to too much interest risk.
– Dr. James Royal, Bankrate Investment and Wealth Management Principal Writer
Be particularly careful about the fund’s expense ratio or fees before investing. As everything else is equal, the lower the expense ratio, the better you are as an investor.
Top Short-Term Bond Funds
*The following data May 30th, 2025.
SPDR Portfolio Short-Term Corporate Bond ETF (SPSB)
SPDR Portfolio Short-Term Corporate Bond ETF aims to track the performance of the Bloomberg US 1-3 years of Corporate Bond Index. The fund is exposed to US corporate bonds that have maturities between one and three years.
- Second yield: 4.56%
- Cost Ratio: 0.04%
- AUM: $8.1 billion
iShares 1-5 Year Investment Grade Corporate Bond ETF (IGSB)
The Ishares Fund aims to track the performance of investment grade corporate bond indexes with maturities between one and five years. Holdings include bonds issued by Bank of America, Wells Fargo and Microsoft.
- Second yield: 4.72%
- Cost Ratio: 0.04%
- AUM: $21.2 billion
Schwab 1-5 Year Corporate Bond ETF (SCHJ)
Schwab 1-5 year corporate bond ETFs are trying to track the total revenues of the index, which measures the performance of the short-term US corporate bond market. The fund holds corporate bonds with maturities remaining between one and five years.
- Second yield: 4.64%
- Cost Ratio: 0.03%
- AUM: $529.9 million
Vanguard Short-Term Bonds ETF (BSV)
The Vanguard Short-Term Bond ETF aims to track the performance of a market-weighted bond index, consisting of investment aptitude bonds with a dollar-weighted average maturity of 1-5 years. The fund holds government bonds, high quality corporate bonds, and investment grade international dollar-controlled bonds.
- Second yield: 4.15%
- Cost Ratio: 0.03%
- AUM: $64.4 billion
Fidelity Short-Term Bond Fund (FSHBX)
The loyal short-term bond fund aims to generate high levels of current income while maintaining capital. Typically, at least 80% of their assets are invested in any type of investment grade obligation, maintaining a dollar-weighted average maturity of less than three years.
- Second yield: 4.30%
- Cost Ratio: 0.30%
- AUM: $2.5 billion
Conclusion
Short-term bond funds are the perfect place to invest the money you need in the coming years. Please note that these funds are risk-free. However, it is safer than investing in high-yield bonds and stock markets. Investors looking to earn more yields with less risk may consider money market funds.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. Furthermore, investors recommend that past investment products performance is not a guarantee of future price increases.