That brings the fees for those products to the same level as its other fixed income ETF products.

Schwab's high-yield bond offering, launched earlier this year, competes head-to-head with products like the SPDR Portfolio High Yield Bond ETF (SPHY). State Street slashed fees on ten SPDR ETFs in August, including that high-yield bond product.

"Investors continue to consistently rank the expense ratio at the top of the list of the factors they consider most important in owning an ETF," said David Botset, managing director of equity product management and innovation at Schwab.

Still, there's a limit to how low fees can go.

"As we get into the low single digits, it's getting more challenging," Bostet added. U.S. equity ETFs that 10 or 15 years ago cost an investor as much as 0.50% to own now have fees of a tenth of that, or even less, he said.

Schwab doesn't want these low-cost ETFs to end up as loss leaders for the company's array of asset management products, Bostet said. "We're confident we can still achieve a level of profitability" from scale, recouping in volume what is lost on pricing.

Schwab has nearly $300 billion in ETF assets under management, out of more than $920 billion managed by Schwab Asset Management overall.

(Reporting by Suzanne McGee; Editing by Sonali Paul)

By Suzanne McGee