I suspect most of those who suggest treading water with short term investments waiting for interest rates to go up, instead of holding one's nose and buying 5 year CDs (or EE bonds for those with more time), haven't done the arithmetic. If you get lower interest while waiting, the end result will likely be less. Since I do use a CD ladder approach, I've crunched the numbers, given how low rates have gotten, and I can find few scenarios, other than a quick jump in rates soon (which no one should expect) in which going for shorter terms and lower yields results in significantly better returns, and plenty of scenarios where interest rates stay down for a few years, where you'd wish you'd just gone with the 5 years.And, I'm loking at rolling over into 5 year CDs. If you actually want your first CD to come due for spending, not rolling over (at least not completely) in 5 years, you'd have to follow up this period of treading water with a shorter term CD. So, I'm afraid you probably are stuck with low interest for 5 years.I would suggest not looking for once a year. Spread it out, maybe every three months (I'm hoping to have 60 CDs coming due one a month), so you don't have to have the money sitting in a money market most of the year. That will also help you catch a range of interest rates.The rate you quote sounds low. My credit union, which has always been on the high end, has 3.9% APY this week, the lowest it has gotten. Sometimes the rate has been as much as .25% higher than anywhere else, but usually somewhere like Ing has been with .10%. Shop around.The Preservation plus income fund sounds like a similar idea to the TIAA Traditional I have for my retirement account, but from Foobar's description, not as conservative. TIAA Traditional is basically like a bond ladder, holding to maturity, with treasuries and high investment grade corporates. It's NAV does not fluctuate, so you don't get the capital gains benefit of a bond fund when the stock market in down the tubes, but you don't have to worry about interest rate risk. In principle, it should have a slightly better yield than 5 year CDs, because it holds longer term and corporate bonds. Currently, it is paying 4% for the account without tight restrictions, 5% in the restricted account (the part with employer match). I presume Scudder is more concerned with its own take than TIAA-Cref, so it has to go for higher risk and still will probably get you a lower return. (If you happen to have a non-profit affiliation or have a spouse who does, you can switch to TIAA.)
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