6 best bond index funds to buy in 2025

Trade your favourite markets with our top-rated broker, eToro.

eToro 4.6/5

eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk.

Visit site

eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk.

Bond index funds offer a cost-effective way to gain exposure to a diversified basket of bonds. They are a great counterweight to a risky portfolio of stocks, providing steady, stable growth even in difficult economic times.

Our experts have chosen six of the best index funds that allow you to invest in the bond market. Each of these funds contains a variety of different types of bonds, from treasuries to corporate to mortgage-backed securities, and all come at a relatively low cost to appeal to a casual investor.

What are the 6 top bond index funds to buy?

1. Vanguard Total Bond Market Index Fund (VBTLX)
2. iShares Core U.S. Aggregate Bond ETF (AGG)
3. Schwab U.S. Aggregate Bond ETF (SCHZ)
4. PIMCO Total Return ETF (BOND)
5. SPDR Bloomberg Barclays Aggregate Bond ETF (BNDS)
6. Fidelity U.S. Bond Index Fund (FXNAX)

The best bond index funds, compared

1. Vanguard Total Bond Market Index Fund (VBTLX)

Key details

• Date created: April 27, 1986
• Expense ratio: 0.04%
• 5-year return: 3.19%
• Minimum investment amount: $3,000
• Dividend yield: 1.71%
• Risk level: Low to moderate

The Vanguard Total Bond Market Index Fund is one of the best Vanguard index funds on the market. The fund’s goal is to track the performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index. 

It invests in a diversified portfolio of U.S. investment-grade bonds, including government, corporate, and mortgage-backed securities. The fund holds bonds from issuers such as the U.S. Treasury, Fannie Mae, and Verizon Communications. 

This fund ranks as the best index fund overall and is best suited for investors seeking broad exposure to the US bond market thanks to its low costs and long reputation of success.

2. iShares Core U.S. Aggregate Bond ETF (AGG)

Key details

• Date created: September 22, 2003
• Expense ratio: 0.04%
• 5-year return: 2.91%
• Minimum investment amount: None
• Dividend yield: 1.72%
• Risk level: Low to moderate

The iShares Core U.S. Aggregate Bond ETF is managed by BlackRock, the world’s largest asset management firm. The fund seeks to track the performance of the Bloomberg Barclays U.S. Aggregate Bond Index. 

It holds a diverse portfolio of US investment-grade bonds, including Treasury, corporate, and mortgage-backed securities. Bonds held in the fund include U.S. Treasury bonds, corporate bonds issued by companies like Microsoft and Apple, and mortgage-backed securities. 

This low cost ETF ranks as our best bond fund for beginners, thanks to the fact that there’s no minimum investment and the annual management fee is so low. 

3. Schwab U.S. Aggregate Bond ETF (SCHZ)

Key details

• Date created: September 29, 2011
• Expense ratio: 0.03%
• 5-year return: 3.13%
• Minimum investment amount: None
• Dividend yield: 1.73%
• Risk level: Low to moderate

The Schwab U.S. Aggregate Bond ETF is managed by Charles Schwab Investment Management. The fund is another bond index fund that aims to track the performance of the Bloomberg Barclays U.S. Aggregate Bond Index.

 It invests in a wide range of investment-grade bonds in the United States, such as Treasury, corporate, and mortgage-backed securities. Bonds held in the fund include U.S. Treasury bonds, corporate bonds issued by companies such as Johnson & Johnson and AT&T, and mortgage-backed securities. 

This ETF is another that’s ideally suited to beginner investors who are seeking broad exposure to the US bond market with a low-cost, passively managed approach.

4. PIMCO Total Return ETF (BOND)

Key details

• Date created: February 29, 2012
• Expense ratio: 0.55%
• 5-year return: 3.12%
• Minimum investment amount: None
• Dividend yield: 2.07%
• Risk level: Low to moderate

The PIMCO Total Return ETF is managed by PIMCO, a global investment management firm. The fund aims to achieve its investment objective by investing in a diversified portfolio of fixed income securities.

While it does not track a specific benchmark index, the bond fund’s management team utilises a combination of macroeconomic analysis and bottom-up security selection to construct the portfolio. 

The fund may hold bonds such as US Treasury securities, corporate bonds, and mortgage-backed securities. This ETF is suitable for investors looking for an actively managed bond fund led by PIMCO’s experienced team.

5. SPDR Bloomberg Barclays Aggregate Bond ETF (BNDS)

Key details

• Date created: April 24, 2018
• Expense ratio: 0.06%
• 5-year return: 3.03%
• Minimum investment amount: None
• Dividend yield: 1.81%
• Risk level: Low to moderate

The SPDR Bloomberg Barclays Aggregate Bond ETF is managed by State Street Global Advisors. Unsurprisingly, given its name, the fund tracks the performance of the Bloomberg Barclays U.S. Aggregate Bond Index.

t invests in a diverse range of US investment-grade fixed income securities, including Treasury, corporate, and mortgage-backed bonds. The fund holds US Treasury bonds, corporate bonds issued by companies like IBM and Verizon, and mortgage-backed securities. 

6. Fidelity U.S. Bond Index Fund (FXNAX)

Key details

• Date created: February 17, 1987
• Expense ratio: 0.025%
• 5-year return: 3.13%
• Minimum investment amount: None
• Dividend yield: 1.81%
• Risk level: Low to moderate

The Fidelity U.S. Bond Index Fund is managed by Fidelity Investments. The fund’s objective is to provide investment results that correspond to the performance of the Bloomberg Barclays U.S. Aggregate Bond Index. 

Bonds held in the fund include US Treasury bonds, corporate bonds issued by companies like General Electric and Ford, and mortgage-backed securities. 

This fund is suitable for investors seeking a low-cost, passively managed bond fund that aims to replicate the performance of the U.S. bond market.

Where to buy the best bond funds

To buy a bond index fund you need to sign up with a top trading platform. Start Trading is our favourite choice for a secure, low cost service that’s easy to use. Here are our top three brokers, ranked by their trading costs and safety ratings.

4.6

eToro

Min. Deposit $100

Fees 1%

No. assets 3600+

Demo account Yes

Visit site

eToro review

eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk.

4.5

Plus500

Min. Deposit $100

Fees From 2%

No. assets 2800+

Demo account Yes

Visit site

Plus500 review

This information is NOT relevant to EU residents who are to be serviced by EU subsidiaries of the Plus500 Group, such as Plus500CY Ltd, authorized by CySEC (Reg. 250/14). Different regulatory requirements apply in Europe, such as leverage limitations and bonus restrictions.

Best bond index funds

Min. Deposit n/a

Fees -

No. assets n/a

Demo account -

Visit site

What is a bond index fund?

A bond index fund is a type of mutual fund or exchange-traded fund (ETF) that aims to replicate the performance of a specific bond index. These funds invest in a diversified portfolio of bonds that match the composition and weighting of the index they track. 

Bond funds provide investors with exposure to a broad range of bonds, typically with specific characteristics such as government bonds, corporate bonds, or a mix of both. The goal is to provide investors with the returns and characteristics of the chosen bond index in a cost-effective and efficient manner.

Bonds are generally considered a safer and more stable investment than equities, so bond funds tend to return smaller returns on average than stock market index funds. The trade off is that there’s less chance of losing money, and many investors hold bond funds to add more safety to their portfolio in times of economic strife.

What types of bonds are held in index funds?

• Government bonds. These bonds are issued by national governments to raise capital and finance their activities. They are generally considered low-risk investments, particularly when issued by politically stable governments of large economies, such as US Treasury bonds and German government bonds. Less stable countries with weaker economies offer higher rates of interest on their government bonds, but there’s a higher risk of default.
• Corporate bonds. These bonds are issued by corporations to raise capital for their business operations or projects. They are generally a little riskier than government bonds but offer potentially higher yields. Examples include bonds issued by companies like Apple or Microsoft.
• Municipal bonds. Also known as munis, these bonds are issued by state and local governments or agencies to fund public infrastructure projects. They often provide tax advantages and can be appealing to investors in higher tax brackets.
• Mortgage-backed securities (MBS). MBS are bonds backed by pools of mortgages. They are issued by government-sponsored enterprises like Fannie Mae and Freddie Mac or private institutions. MBS can offer exposure to the housing market and income from mortgage payments.
• High-yield bonds. Also known as junk bonds, these bonds have lower credit ratings and higher default risk than investment-grade bonds. They offer higher yields to compensate for the additional risk. 

How do index fund managers decide which bonds to invest in?

Usually by following specific rules and methodologies established for the index they are tracking. The bond index outlines the criteria for bond selection, such as issuer type, credit rating, maturity range, and sector exposure. 

Index fund managers aim to replicate the index’s composition and weighting as closely as possible. They typically use a “passive” investment strategy, meaning they buy and hold the bonds in the index without trying to outperform the market. Rebalancing may occur periodically to maintain alignment with the index as bonds mature or new bonds are issued.

How much do bond funds cost?

For most passive funds the cost is less than 0.5% per year. Each index fund charges an annual maintenance or management fee, which is referred to as the fund’s ‘expense ratio’ and given as a percentage of your investment. 

For active funds, you may have to pay 0.75% or more. That type of mutual fund is run by active managers, so you’re paying for the time and expertise of the fund managers who decide which stocks to invest in.

In addition, you may have to pay a trading fee when you buy or sell a stake in a mutual fund. Some trading platforms charge a fee each time you make an investment. This varies depending on the brokerage you use; most services don’t charge any commission, others charge a couple of pounds each time.

How to choose the right bond funds for you

Our experts ranked the best index funds based on a range of factors, from the annual running cost to the risk profile of each fund. You should use the same features to pick the mutual funds that suit your expectations and investment goals.

• Annual management fee. Each mutual fund charges an annual fee as a percentage of your investment. Passive funds tend to be cheaper, while active funds are more expensive. When you invest in bond funds, you’re normally looking to buy and hold for a few years. Small fee differences can add up to a big variation in returns over the long term, so you should favour mutual funds with the lowest maintenance fees.
• Fund size. The more money in an index fund, the more stable its performance is likely to be. Funds with low assets under management (AUM) can rely too heavily on the performance of one or two stocks and lack the diversification investors want. 
• Index fund weighting. Each index fund tracks a stock market index, but there can be big differences in how the fund tracks its benchmark index. Pay close attention to the weighting in particular. An index fund that scales its weighting so that a larger percentage, say 10%, goes into one or two stocks is going to be far more affected by the performance of those companies than one which invests 5% in all stocks equally.
• Risk profile. Each index fund factsheet has to report its risk profile on a scale between 1 and 7, with 7 being the riskiest. This synthetic risk and reward measure (SRRI) is an industry standard that you can use to compare risk across asset management companies. Less risk is better, but many people choose to have a balance of different risk profiles in their portfolio, as the riskier ones can generate higher returns (as well as higher losses).
• Hedging and currency risk. Every index fund is denominated in a particular currency, such as GBP or USD. That means that fluctuations in the strength of that currency can act as a drag or boost on performance. If your fund is in GBP and the pound is weak relative to USD, that means the fund will underperform the same fund denominated in USD. Some index funds hedge their currency risk to avoid this, others don’t.
• Share class. Some funds generate income from dividends. For these types of funds there are two share classes: income and accumulation. The former means that any income is paid out automatically, while accumulation means the money is automatically reinvested. Accumulation is more convenient, while income means you might build up spare cash in your brokerage account. An index fund can be one or the other, while some offer a choice between both.

Are bond index funds a good investment?

Bond funds can be a good investment option for various reasons. They offer diversification across a broad range of bonds, reducing the risk associated with investing in individual bonds, and allow you to invest in safe bonds, such as government treasuries, without needing to put up thousands of pounds to buy your own.

Bond funds also provide transparency and low-cost exposure to a specific bond market segment, making them an attractive choice for investors seeking broad market exposure. They are generally more cost-effective compared to actively managed bond funds, as they require less ongoing management and have lower expense ratios. 

However, it’s not a good idea to invest solely in bond funds, as the potential for gains is limited and your portfolio’s performance might lag behind more traditional stock index funds when the stock market is growing. The best option is to invest in a mix of bond funds and stocks, with the bonds providing stability as a counterweight to riskier stock investments.

FAQs