SCHO vs. VTES: Which Short-Term Bond ETF Is the Better Buy in 2026?
Key Points
Schwab's SCHO offers a lower expense ratio and higher trailing-12-month dividend yield than Vanguard's VTES.
VTES targets municipal bonds to provide federal tax-exempt income, whereas the Schwab fund holds taxable U.S. Treasury notes.
SCHO has demonstrated higher growth of $1,000 over three years with lower price volatility than the Vanguard fund.
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The Schwab Short-Term U.S. Treasury ETF (NYSEMKT:SCHO) provides liquid exposure to government-backed debt, while the Vanguard Short-Term Tax-Exempt Bond ETF (NYSEMKT:VTES) looks better for investors seeking federal tax-free income.
These funds offer conservative exposure to short-term bonds but serve different tax purposes. SCHO focuses on highly liquid U.S. Treasury notes. At the same time, VTES targets investment-grade municipal bonds to provide income generally shielded from federal income tax and the federal alternative minimum tax.
Snapshot (cost & size)
| Metric | VTES | SCHO |
|---|---|---|
| Issuer | Vanguard | Schwab |
| Share price | $101.21 (as of 2026-07-02) | $24.09 (as of 2026-07-02) |
| Expense ratio | 0.05% | 0.03% |
| 1-yr return (as of 2026-07-02) | 3.2% | 3.1% |
| Dividend yield | 2.7% | 3.9% |
| Beta | 0.37 | 0.23 |
| AUM | $2.0B | $12.6B |
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 Schwab fund is slightly more affordable with a 0.03% expense ratio compared to 0.05% for the Vanguard fund. Additionally, the Schwab fund offers a significantly higher trailing-12-month dividend yield, reflecting its taxable nature.
Performance & risk comparison
| Metric | VTES | SCHO |
|---|---|---|
| Max drawdown (3 yr) | (1.8%) | (1.0%) |
| Growth of $1,000 over 3 years (total return) | $1,098 | $1,134 |
What's inside
Schwab Short-Term U.S. Treasury ETF invests in 97 U.S. Treasury securities with remaining maturities between one and three years. Its largest positions include Treasury Note 3.50% 01/31/2028 at 2.18% and Treasury Note 4.63% 04/30/2029 at 1.40%. The fund launched in 2010. Schwab Short-Term U.S. Treasury ETF has paid $0.94 per share over the trailing 12 months, which, on its recent ~$24.09 share price, works out to a 3.9% yield.
Vanguard Short-Term Tax-Exempt Bond ETF focuses on the investment-grade segment of the U.S. municipal bond market, holding 2,667 bonds with maturities up to seven years. Its top holdings include Vanguard Municipal Low Duration Fund 12/31/2049 at 1.98% and Harris County Cultural Education Facilities Finance Corp 1.45% 12/01/2060 at 0.29%. The fund launched in 2023. Vanguard Short-Term Tax-Exempt Bond ETF has paid $2.76 per share over the trailing 12 months, which, on its recent ~$101.21 share price, works out to a 2.7% yield.
For more guidance on ETF investing, check out the full guide at this link.
Which ETF is the better buy?
Schwab and Vanguard offer quality ETFs for long-term investors, and that’s certainly the case with these two short-term bond funds. Investors in high-income tax brackets who are looking to add a short-term bond fund to a taxable account may prefer the Vanguard tax-exempt ETF.
Other investors may do better over the long term with SCHO. The Schwab ETF has delivered higher total returns in the last five years, which covers a full market cycle and the increase in interest rates. This shows SCHO’s ability to perform relatively well across different market environments.
While SCHO doesn’t offer tax-free income like VTES, its main advantages are a high yield and virtually zero credit risk, given its U.S. Treasury mandate.
Investors in lower tax brackets who invest in a tax-advantaged account, such as a retirement plan, will likely favor SCHO. The choice of which ETF to go with ultimately depends on each investor’s tax situation.
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John Ballard 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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