Author Topic: High Interest savings account vs Bonds  (Read 1347 times)

freedomfightergal

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High Interest savings account vs Bonds
« on: January 01, 2019, 06:00:46 PM »
Hi

Newbie question, I'm getting 2.25% in a savings account, and I looked at the Vanguard US Bond Index which seems to be returning mostly less than this.  So I'm thinking of keeping $ in the savings account with the daily 2.25% return, or am I misunderstanding the Bond market?

Thanks in advance.

Rob_bob

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Re: High Interest savings account vs Bonds
« Reply #1 on: January 01, 2019, 07:43:35 PM »
There are different rates for different types of bonds and bond funds and for the length of duration.

I'm light in bonds because the FED has been raising rates steadily causing bond prices to fall.  When they stop raising rates I might add some bonds.

You can look at the bond yields for these ETF's here.

https://www.invesco.com/bond-ladder/

COEE

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Re: High Interest savings account vs Bonds
« Reply #2 on: January 01, 2019, 08:55:23 PM »
Bonds are not a good substitute for short-term savings - See this thread:
https://forum.mrmoneymustache.com/investor-alley/where-should-you-put-your-short-term-investment-money-(0-2-years)/

Buy intermediate bonds with money you don't expect to use for 6-10 years.

A case can be made for short or ultra-short bond funds since they have less volatility due to their short duration (0-2 years), but the yields aren't much better than just investing in a savings account where your money is better protected (FDIC insurance and no loss in principal.)

Radagast

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Re: High Interest savings account vs Bonds
« Reply #3 on: January 01, 2019, 08:56:47 PM »
Good savings accounts yield 2.25% +/-0%.
Vanguard total bond market yields 3.26% +/-3.5%.

You get extra risk for extra return. Over the long term higher return will result in higher return, and buying when prices are lower will be better than buying when prices were higher.  Plus bonds generally fluctuate independently of stocks, I'd lean strongly towards bonds unless I needed the money like tomorrow.

freedomfightergal

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Re: High Interest savings account vs Bonds
« Reply #4 on: January 02, 2019, 12:25:30 PM »
thanks for the advice!

MTBmustachian

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Re: High Interest savings account vs Bonds
« Reply #5 on: January 02, 2019, 12:44:59 PM »
Bonds are not a good substitute for short-term savings - See this thread:
https://forum.mrmoneymustache.com/investor-alley/where-should-you-put-your-short-term-investment-money-(0-2-years)/

Buy intermediate bonds with money you don't expect to use for 6-10 years.

A case can be made for short or ultra-short bond funds since they have less volatility due to their short duration (0-2 years), but the yields aren't much better than just investing in a savings account where your money is better protected (FDIC insurance and no loss in principal.)

I think the OP is saying go the other way. Not keeping your short term savings in bonds, but instead of keeping the percentage of your portfolio that you would normally delegate to bonds in bond funds, keep it in a high yield savings account instead.

Quote
Vanguard total bond market yields 3.26% +/-3.5%.

Google says that VBMFX currently yields 2.69%.
Google currently says FTBFX (Fidelity Total Bond Market Fund) is yielding 3.02%.

Not sure what timeframe they use to calculate those numbers, though.

MustacheAndaHalf

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Re: High Interest savings account vs Bonds
« Reply #6 on: January 02, 2019, 07:29:04 PM »
Vanguard total bond market yields 3.26% +/-3.5%.
Google says that VBMFX currently yields 2.69%.
Google currently says FTBFX (Fidelity Total Bond Market Fund) is yielding 3.02%.

Not sure what timeframe they use to calculate those numbers, though.
vanguard.com is a better source for Vanguard funds.  Right now VBMFX has an SEC 30-day yield of 3.18%, according to Vanguard, which runs the fund:
https://investor.vanguard.com/mutual-funds/profile/VBMFX

Radagast

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Re: High Interest savings account vs Bonds
« Reply #7 on: January 02, 2019, 09:35:06 PM »
Vanguard total bond market yields 3.26% +/-3.5%.
Google says that VBMFX currently yields 2.69%.
Google currently says FTBFX (Fidelity Total Bond Market Fund) is yielding 3.02%.

Not sure what timeframe they use to calculate those numbers, though.
vanguard.com is a better source for Vanguard funds.  Right now VBMFX has an SEC 30-day yield of 3.18%, according to Vanguard, which runs the fund:
https://investor.vanguard.com/mutual-funds/profile/VBMFX
^This. I always look at the SEC yield, which you would have to read up on to learn more about. VBMFX is closing in favor of Admiral Shares only, and the 0.08% expense ratio difference accounts for the difference in SEC yield.