Which Is the Better Intermediate-Term Bond ETF, Vanguard's VCIT or iShares' Treasury-Focused IEI?
Key Points
The Vanguard Intermediate-Term Corporate Bond ETF offers a lower expense ratio and higher trailing-12-month dividend yield than iShares 3-7 Year Treasury Bond ETF.
The iShares 3-7 Year Treasury Bond ETF focuses on U.S. government debt, resulting in lower historical price volatility and a smaller maximum drawdown than the Vanguard fund.
The Vanguard fund provides exposure to investment-grade corporate credit with intermediate maturities, while the iShares fund concentrates on shorter-duration Treasury notes.
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Choosing between the Vanguard Intermediate-Term Corporate Bond ETF (NASDAQ:VCIT) and iShares 3-7 Year Treasury Bond ETF (NASDAQ:IEI) involves balancing higher income potential from corporate credit against the safety and lower volatility of U.S. government treasuries.
Both exchange-traded funds manage sensitivity to interest rate changes by targeting middle-range maturities, yet they provide access to fundamentally different segments of the fixed-income market. The choice between them often hinges on an investor preference for the security of government backing versus the potentially higher yields found in corporate debt.
Snapshot (cost & size)
| Metric | VCIT | IEI |
|---|---|---|
| Issuer | Vanguard | iShares |
| Expense ratio | 0.03% | 0.15% |
| 1-yr return (as of June 17, 2026) | 5.50% | 2.80% |
| Dividend yield | 4.80% | 3.60% |
| Beta | 0.33 | 0.14 |
| AUM | $68.7 billion | $18.3 billion |
Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
The Vanguard fund is the more affordable option, featuring a 0.03% expense ratio compared to 0.15% for the iShares fund. This 0.12 percentage point difference may influence long-term compounding.
Additionally, the Vanguard fund provides a higher payout for income-seeking investors, maintaining a dividend yield that is 1.15 percentage points higher than IEI as of June 17, 2026. The Vanguard fund also manages significantly more assets under management (AUM).
Performance & risk comparison
| Metric | VCIT | IEI |
|---|---|---|
| Max drawdown (5 yr) | (20.50%) | (13.90%) |
| Growth of $1,000 over 5 years (total return) | $1,056.00 | $1,014.00 |
What's inside
The iShares 3-7 Year Treasury Bond ETF is a fixed-income fund that replicates the performance of an index composed of U.S. government Treasury securities. It targets bonds with remaining maturities between three and seven years, a range that typically offers less volatility than longer-term debt. With 82 holdings, its largest positions include Treasury Note 4.38% 11/30/2030 at 2.91%, Treasury Note 4.00% 02/28/2030 at 2.31%, and Treasury Note 1.38% 11/15/2031 at 2.27%. This iShares fund was launched in 2007 and paid $4.26 per share over the trailing 12 months.
In contrast, the Vanguard Intermediate-Term Corporate Bond ETF aims to provide a higher income stream by investing in investment-grade corporate debt. Its portfolio of 343 holdings focuses on securities with dollar-weighted average maturities of five to 10 years, which generally results in higher interest rate sensitivity than the shorter-dated iShares fund. The fund is highly diversified, ensuring that no single position exceeds 0.31% of the portfolio. Launched in 2009, the Vanguard fund has a trailing-12-month dividend of $3.95 per share and carries more credit risk than its government-focused counterpart.
For more guidance on ETF investing, check out the full guide at this link.
What this means for investors
Both the iShares 3-7 Year Treasury Bond ETF (IEI) and Vanguard Intermediate-Term Corporate Bond ETF (VCIT) provide investors with reliable income and a means to prioritize capital preservation. They are ideal for investors with a medium-term investment horizon seeking an a fund that emphasizes income rather than growth. Deciding between the two comes down to a few key considerations.
IEI is for conservative investors who want the high security afforded by U.S. Treasuries. Its interest is generally exempt from state and local taxes, making it a compelling ETF for those in high-tax states. The downside compared to VCIT is a lower dividend yield, and its higher cost eats into your return.
VCIT offers superior income in the form of a larger dividend yield and ultra-low fees, a great combination. However, its focus on corporate debt translates into higher risk, since your returns are tied to the financial health of corporations. In fact, although VCIT’s holdings are investment grade, 47% of the fund is comprised of BBB-rated bonds, which increase the risk.
If your priority is income and you’re comfortable with higher volatility and corporate default potential, VCIT is the better ETF. For those seeking a dependable portfolio cushion to balance out riskier stocks, support capital preservation, and want government-guaranteed safety, then IEI is the fund to choose.
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Robert Izquierdo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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