This Fee That Eats Into Your Retirement Savings Just Hit a Record Low
Mutual fund expense ratios dipped again in 2025, and the rate of decline has increased, according to Morningstar’s latest annual U.S. Fund Fee Study.
U.S. investors saved an estimated $6.8 billion last year thanks to the dip in the expense ratio they pay when investing in open-end mutual funds and exchange-traded funds (ETFs). The asset-weighted average expense ratio was 0.32%, down from 0.34% in 2024.
The rate of decline sped up last year. Many mutual funds and ETFs now charge an expense ratio below 0.05%. Ratios on such investments are “approaching a floor,” according to Morningstar.
That’s despite a wave of new active ETFs and alternative ETFs that have higher costs.
Expense ratios are now less than half of what they were 20 years ago, dropping from 0.80% in 2006 to 0.32% last year.
Passively managed mutual funds, which are sometimes also referred to as index funds, continue to be far cheaper than their actively managed counterparts, on average.
According to Morningstar, the asset-weighted average fee for:
- Passively managed funds was 0.10% last year
- Actively managed funds was 0.57% last year
Money Talks News founder Stacy Johnson further details the advantages of index funds in “Are Actively Managed Mutual Funds Better Than Index Funds?.”
What is an expense ratio?
An expense ratio is a measure of the cost of owning shares of a mutual fund.
Morningstar examines asset-weighted average expense ratios because they are more reflective of what investors pay than equal-weighted average expense ratios. Equal-weighted ratios are what funds charge but not necessarily what an investor will pay.
The drop in mutual fund costs is a huge boon for retirement investors. As we detail in “Of All the Fees You Pay, This Is the Worst,” just a 1% difference in investment expenses can cost you hundreds of thousands of dollars in lost savings over time.
In short, lower fees mean millions more Americans will enjoy the retirement of their dreams.
So, always compare the costs of owning different mutual funds before investing in any. One way to do this is to use the Financial Industry Regulatory Authority’s free Fund Analyzer tool.
