Stashing money short term- comparing bond funds and CDs?

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Sharp
Posts: 2
Joined: Wed Mar 25, 2020 8:17 pm

Stashing money short term- comparing bond funds and CDs?

Post by Sharp » Wed Mar 25, 2020 8:40 pm

Asking for help in comparing bond funds and CDs, and then selecting one (or more) for 9-12 months of storing cash while equities settle down (hopefully).

1. Ally is offering 1.55% APY on a no penalty CD. I’m not clear what to compare that with in a bond fund’s prospectus: SEC yield, yield to maturity, or something else?

2. Do I care that I plan on keeping cash in either (or combo) for 9-12 months when I’m comparing rates? Or that interest rates are currently low?

I understand it won’t be a significant difference in returns, just trying to understand the process better / compare apples to apples.

3. Is there a general recommendation for when tax exempt bond funds make sense? I’m in 24% federal tax bracket and 5.75% state.

4. Based on info above and accepting some risk, have any recommendations for CD vs specific vanguard bond funds?

Thanks for any feedback!

Topic Author
Sharp
Posts: 2
Joined: Wed Mar 25, 2020 8:17 pm

Re: Stashing money short term- comparing bond funds and CDs?

Post by Sharp » Sat Mar 28, 2020 8:22 am

Anyone have feedback about the comparing rates question?

MikeG62
Posts: 2468
Joined: Tue Nov 15, 2016 3:20 pm
Location: New Jersey

Re: Stashing money short term- comparing bond funds and CDs?

Post by MikeG62 » Sat Mar 28, 2020 9:54 am

Sharp wrote:
Wed Mar 25, 2020 8:40 pm
Asking for help in comparing bond funds and CDs, and then selecting one (or more) for 9-12 months of storing cash while equities settle down (hopefully).

1. Ally is offering 1.55% APY on a no penalty CD. I’m not clear what to compare that with in a bond fund’s prospectus: SEC yield, yield to maturity, or something else?

2. Do I care that I plan on keeping cash in either (or combo) for 9-12 months when I’m comparing rates? Or that interest rates are currently low?

I understand it won’t be a significant difference in returns, just trying to understand the process better / compare apples to apples.

3. Is there a general recommendation for when tax exempt bond funds make sense? I’m in 24% federal tax bracket and 5.75% state.

4. Based on info above and accepting some risk, have any recommendations for CD vs specific vanguard bond funds?

Thanks for any feedback!
Marcus is offering 1.70% on their 7-month no penalty CD. Ally is at 1.55% I believe. Navy Federal is offering 2.25% on their traditional CD (and it’s an add-on CD too, which is very nice). So there are some options for you.

WRT your specific question, compare yields for bond funds using the 30-SEC yield.

I would not go into muni’s right now if in your shoes. Muni market is behaving a bit irrationally. Also, your marginal tax rate likely not high enough to more than offset higher yield from taxable and if it is it may not justify the risk.
Real Knowledge Comes Only From Experience

Call_Me_Op
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Location: Milky Way

Re: Stashing money short term- comparing bond funds and CDs?

Post by Call_Me_Op » Sat Mar 28, 2020 10:45 am

Sharp wrote:
Wed Mar 25, 2020 8:40 pm
Asking for help in comparing bond funds and CDs, and then selecting one (or more) for 9-12 months of storing cash while equities settle down (hopefully).
If you want to ensure that you do not lose money at the end of 12 months you should avoid bond funds.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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