Bob's standard answer is you should be willing to accept NAV fluctuation for VFIIX between $9.50 and $10.50.
I think the callers have a valid concern and I am not happy with Brinker's answer.
Today VFIIX closed at $10.71 so a decline in NAV to $9.50 would be an 11.5% loss!
Why take a risk of a 12% loss to get an extra percent or two of interest if you don't have to?
Below is a survey of the CD rates offered by the five largest banks operating in the United States. Current US Treasury rates are also shown to give you an idea of just how low rates are.
I think CDs under the current FDIC limits of $250,000 for each bank are great deals now.
If rates soar in the future, you can pay the penalty (usually one to six months of interest) and get new CDs at the higher rates.
With Bonds, you suffer net asset value (NAV) losses when rates soar that can far exceed 6 months of interest on a 5-year CD that currently only pays 3.44% at Citibank.
To see an easier to read version of this table, click CD Rates at Largest US Banks
|Bank ||CD Rates - APY in % |
as of 9/9/09 for $10,000
|6- Mo ||1-Yr ||18-Mo ||2-Yrs ||3-Yrs ||5-Yrs |
|Bank of America (BAC) ||0.55 ||0.95 ||1.00 ||2.15 ||2.30 ||3.01 |
|JP Morgan Chase (JPM) |
Bought WaMu -Washington Mutual
|0.75 ||1.25 ||1.50 ||2.15 ||2.25 ||3.00 |
|Citibank (C) |
aka Citigroup & Citicorp
|0.80 ||1.49 ||1.98 ||1.73 ||2.23 ||3.44 |
|Wells Fargo Bank (WFC) |
Bought Wachovia - World Savings
|0.30 ||0.60 ||1.40 |
|NA ||NA |
|HSBC Bank North America - |
Branch & Telephone Rates
|0.45 ||0.55 ||0.55 |
|0.75 ||0.75 ||1.01 |
|HSBC Online Rates ||1.25 ||2.00 ||2.00 |
|US Treasury Rate ||0.20 ||0.39 ||NA ||0.94 ||1.51 ||2.41 |
With rates so high, don't be suckered by banks offering annuities. Make sure you read the article "Beware of Annuities" so you are well armed before you enter the bank seeking high rates.
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