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No. of Recommendations: 2
Group;

I enjoy the articles and the obvious expertise in this forum. Now, I hope to draw on your expertise and judgment with regards to funds invested in GE Interest Plus. I have my emergency funds and other special short-term funds invested in GE Interest Plus - it's a significant amount of money to me. I have been a GE Interest Plus investor for about 10 years now, and think it's a great service. However, given the recent financial crisis and the fact that GE Interest Plus is not FDIC insured, my question is obvious; should I be worried about the safety of my money? Should I move my funds to an FDIC insured account, or leave them alone? I haven't panicked yet, and my tendency is to not do so and leave my funds where they are, but these are extraordinary times indeed - so, I would appreciate your thoughts on the matter. Much thanks!

George
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No. of Recommendations: 15
I have my emergency funds and other special short-term funds invested in GE Interest Plus - it's a significant amount of money to me. I have been a GE Interest Plus investor for about 10 years now, and think it's a great service. However, given the recent financial crisis and the fact that GE Interest Plus is not FDIC insured, my question is obvious; should I be worried about the safety of my money? Should I move my funds to an FDIC insured account, or leave them alone?

George, I'd never heard of GE Interest Plus until I read your post. I Googled it and found this:

http://www.geinterestplus.com/interestplus/

I was not impressed with their bond rates:
Investment Amount Rate(%) Yield(%)
Less than $15k 3.05 3.09
$15k - $49,999 3.25 3.30
$50k and more 3.45 3.51


Also, "The Notes are a direct investment in General Electric Capital Corporation..." which means you're putting your money in corporate paper. Not something I would do, especially not now.


Why not put the bucks in Vanguard's GNMA fund? It's got Fed backing and you can have a check book (min check $250) so as to have instant access to your money if you need it. (Currently yielding 5.15% with an expense ratio of 0.21%)
https://personal.vanguard.com/us/funds/snapshot?FundId=0036&...

Or, if you have enough money (Currently yielding 5.25% with an expense ratio of 0.11%)
https://personal.vanguard.com/us/funds/snapshot?FundId=0536&...

The Government National Mortgage Association (GNMA, also known as Ginnie Mae) is a U.S. government-owned corporation within the Department of Housing and Urban Development (HUD).

Ginnie Mae provides guarantees on mortgage-backed securities (MBS) backed by federally insured or guaranteed loans, mainly loans issued by the Federal Housing Administration, Department of Veterans Affairs, Rural Housing Service, and Office of Public and Indian Housing. Ginnie Mae securities are the only MBS that are guaranteed by the United States government.
http://en.wikipedia.org/wiki/GNMA
http://www.ginniemae.gov/about/about.asp?Section=About

Vanguard Treasury Money Market Fund #0050 (VMPXX)
https://personal.vanguard.com/us/funds/snapshot?FundId=0050&...

Holds only U.S. Government & Agency paper. "The fund invests solely in high-quality, short-term money market securities whose interest and principal payments are backed by the full faith and credit of the U.S. government. At least 80% of the fund’s assets will always be invested in U.S. Treasury securities; the remainder of the assets may be invested in securities issued by U.S. government agencies. The fund will maintain a dollar-weighted average maturity of 90 days or less."
https://personal.vanguard.com/us/FundsStrategyAndPolicy?Fund...

The only way you can get closer to your government is to buy Treasury Bills, Notes, Bonds, and Treasury Inflation-Protected Securities (TIPS) directly through Treasury Direct.
http://www.treasurydirect.gov/indiv/myaccount/myaccount_trea...

The advantage of Vanguard's Treasury Money Market Fund is that you can get a check book that allows you write checks (minimum check $250) on the account.
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Shesh, an ING 6 month CD is 3.75% and it is FDIC insured. And 2 year CD is 4.50% Ditto on FDIC insured.

You may want to think about better options.
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DesertDave;

Much thanks for the information, you were very helpful. The Vanguard Treasury Money Market Fund (Vanguard fund #0050) only pays about 1.5%, which is substantially less than GE Interest Plus (about 3.25%). Of course, it comes with government protection, so you are "paying" for the security.

I'm still studying the prospectus for the GNMA fund (Vanguard fund #0036) - I need to understand it a bit better, but it certainly looks good. It appears that you can lose money in this fund - although it seems to be unlikely - is that your understanding? It was late last night when I looked at it, so I may have been a bit drowsy..... Thanks again,

George
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RosieTomato;

I don't think CD's are an apples to apples comparison. With GE Interest Plus I can write checks ($250 minimum) to access my funds at any time. I can also add funds at any time I want (again, $250 min) - so basically it works just like a checking account with the added bonus of getting a 3+% interest rate.

CD's are good for longer-term savings, but sometimes I add money to my GE Plus account that I know will only be there for a month or 2.

George
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Much thanks for the information, you were very helpful. The Vanguard Treasury Money Market Fund (Vanguard fund #0050) only pays about 1.5%, which is substantially less than GE Interest Plus (about 3.25%). Of course, it comes with government protection, so you are "paying" for the security.

Exactly! Although, in today's climate I'd rather have Vanguard's Treasury Money Market Fund than GE Interest Plus. As Will Rogers is reputed to have said: "I'm not as concerned about the return on my money as I am the return of my money."

I'm still studying the prospectus for the GNMA fund (Vanguard fund #0036) - I need to understand it a bit better, but it certainly looks good. It appears that you can lose money in this fund - although it seems to be unlikely - is that your understanding?

George, yes. The underlying GNMA bonds are backed by the government so there is safety and a bottom there.

The possibility of net asset value loss comes from the fact that if the interest rates are lowered and if as a result of that a significant number of the people with the mortgages the GNMA bonds are based on were to refinance at the new lower rate the income from the bonds would eventually go down as mortgages come into the pool at a lower interest rate.

Bob Brinker says on his nationally syndicated radio show that the price of Vanguard's GNMAs has fluctuated between $9.50 and $10.50 over the last ten years.

Of course Vanguard's GNMA fund is MUCH safer than GE Interest Plus!
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GNMA's can lose money if interest rates increase since they act like medium term bonds. You get two periodic payments, one principal the other interest, because you effectively own a package of mortgages insured by USA. So a portion of your return is return of principal, which is called "reinvestment risk" You can't hold till maturity when you invest in a fund so you have interest rate risk.
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Weown a tad of the Vanguard GNMA fund. It is sort of like bonds, but notquite. Unlike bonds, the price per unit and the dividends can go down together.

This bothered me. We used to own a lot of GNMA funds but now only the tad which I haven't seen fit to cancel out.

But I do think the Vanugard fund is the best and is a great buy below $10/un.

brucedoe
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