No. of Recommendations: 0
I was looking at Vanguard Short-Term (VWSTX) and Ltd-Term (VMLTX) Tax-Exempt Bond funds to see how their tax-free income compares with that from a typical one-yr CD after, say, 30% tax. While the respective yields are given as 2.31% and 3.18%, the one yr. returns after tax (as of 31 March 2002) are 3.35% and 3.46%. The figures after sale of fund shares are even better: 3.48% and 3.79% (presumably because the price of each fund a year ago was higher than on 31 March?). Even without this, the returns are much better than the quoted yields, and look quite attractive.

I am not sure if the annual return is just the average yield over the year or if it includes some thing else. If the current interest rate remains the same for the next twelve months, can we expect the one year return next March to be the same as the quoted yield, assuming the fund prices remain more or less unchanged?

Comments, please.

Thanks.

alpha


Print the post Back To Top
No. of Recommendations: 0
Not sure i understand the issue:

Current yield is just current (if I remember right, average for the last 5 days). Total return for 1 year will depend on the average yield over the year, compounding if your dividends are reinvested, and whether the fund's Net Asset Value is higher or lower.

I can get a 4% 1 year CD, which would be roughly equivalent to a 2.8% tax exempt yield in a 30% tax bracket. The question is where will the Net Asset Value of the fund be a year from now?
Print the post Back To Top
No. of Recommendations: 0
Thanks. The best rate I can find for a one yr CD is 3.3% APY, offered by ING Direct. A 4% one-yr return from a CD would definitely be better than the muni bonds, because of the NAV risk you mention for the bond option. But, do you know if any bank is actually offering this rate now?

I agree that until the time the interest rate starts going up, there is a risk in investing in bond funds, particularly for the intermediate and the long-term bonds. If one has to wait for 12 to 18 months before taking the plunge, keeping the money in a 12 to 18 month CD is perhaps the best option; but the rate has to be good.

Cheers.

Print the post Back To Top
No. of Recommendations: 0
Nobody's offering 4%, but some bank is offering 3.75% APY for a one-year CD. It's listed at www.bankcd.com , but you have to pay $10 to find out what bank it is.
Print the post Back To Top
No. of Recommendations: 0
My credit union, and at least one other local credit union, continues to offer 4% APY on a 1 year CD and 5.5% on a 5 year CD, as it has since late January.
Print the post Back To Top
No. of Recommendations: 0
This might be the one they're mentioning (or not mentioning in this case.)
    Cyber CD's   3.75% APY   3.70%   Min. amount $500.
http://www.charterone.com/PF/cdcenter.asp

I found it the other day by going through the following for a few states, before realizing there has to be a better way to do this (it forces you do to search state by state.)
http://www.amazingrates.com/StartSearch.asp

-upatnite2
Print the post Back To Top