Why would I invest in this bond fund vs keeping it in a savings account?

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JustinR
Posts: 417
Joined: Tue Apr 27, 2010 11:43 pm

Why would I invest in this bond fund vs keeping it in a savings account?

Post by JustinR » Wed Dec 06, 2017 12:52 am

For my HSA, I need to put my money into a treasuries fund so I don't get taxed by my state. This is the commission fee option from TDA.

At those returns, I could do better just parking it in a "high interest" savings account (1.2% or so). Am I missing something? Why would anyone invest in this?


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AlohaJoe
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Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Why would I invest in this bond fund vs keeping it in a savings account?

Post by AlohaJoe » Wed Dec 06, 2017 1:41 am

JustinR wrote:
Wed Dec 06, 2017 12:52 am
Why would anyone invest in this?
- Because they want to invest $2 million, which is far above FDIC limits.
- Because they don't have access to a US bank account. (e.g. foreign investor or just a US citizen living overseas without a US mailing address)
- Because the difference of <1% on something that is maybe 25% of your portfolio is deemed insignificant
- Because rates vary and sometimes the returns are better than on a high-yield savings account
- Because over the past 10 years returns have been noticeably higher than high-yield savings accounts
- Because Treasuries are more liquid than high-yield bank accounts (admittedly not by a whole lot)
- Because they don't want to feel like they have to chase rates on high-yield accounts or watch the terms & conditions on their bank account
- Because they want to hold the money at a broker to increase their margin limit at that broker
- Because holding all assets at a broker allows you get around trading delays caused by T+2 settlement
- ... I dunno, I feel like I could go on.

Nekrotok
Posts: 100
Joined: Wed Aug 10, 2016 3:44 pm

Re: Why would I invest in this bond fund vs keeping it in a savings account?

Post by Nekrotok » Wed Dec 06, 2017 12:51 pm

You are looking at past performance which is not necessarily indicative of future returns. You need to look at the SEC yield, which at 1.86% exceeds your savings account yield. So you get higher expected yield but at the risk of maybe getting lower actual yields, as may have happened in the historical results assuming SEC yields we're the same back then.
Last edited by Nekrotok on Wed Dec 06, 2017 1:16 pm, edited 1 time in total.

mega317
Posts: 1228
Joined: Tue Apr 19, 2016 10:55 am

Re: Why would I invest in this bond fund vs keeping it in a savings account?

Post by mega317 » Wed Dec 06, 2017 12:52 pm

Also the SEC yield of 1.86% is higher than a savings account, and as you mention not taxed by the state.
EDIT Beaten to the punch.

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