ETF Switch Breakeven Calculator
Switching to a cheaper ETF but paying a spread or tax now? See how many years the lower expense ratio takes to pay it back.
How it works
Annual saving = balance × (old ER − new ER) · Breakeven years = one-time cost ÷ annual saving
A cheaper fund only helps if the ongoing saving outruns the one-time cost of getting there — a bid-ask spread, a redemption fee, or capital-gains tax on selling the old holding. Divide the upfront cost by the yearly fee difference to see the payback period. This ignores the tax deferral you give up, so treat a short payback as a strong signal and a long one as a reason to hold in a taxable account.
Worked example
Moving $50,000 from a 0.60% fund to a 0.05% fund saves 0.55% a year, or $275. If switching triggers $400 in tax and spread, breakeven is 400 ÷ 275 ≈ 1.5 years, and over 10 years you net $2,350.
Frequently asked questions
Should I switch if it triggers capital gains tax?
Compare the tax bill to the annual fee saving. A payback under a few years is usually worth it; if it takes a decade, the tax drag of selling may outweigh the lower fee, especially in a taxable account.
What counts as a switching cost?
Any one-time friction: capital-gains tax on selling the old fund, the bid-ask spread on both trades, and any redemption or transaction fee. In a tax-advantaged account, usually just the spread.
Does a bigger balance change the answer?
Yes. The annual saving scales with the balance while a fixed-dollar cost does not, so larger accounts break even faster.
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Educational estimate using simplified assumptions — real returns, taxes and fees vary. Not financial advice.