High yield vs. Bond

[jad56061]

Bonds are SUPER low with interest, some only 1-3% interest. What is the benefit of using bonds vs. a high yield?

[Anonymous_]

High yield what? Your question is not tax-related but:

Bonds are not yielding 1-3% interest currently (see the links below).

https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treas...

https://treasurydirect.gov/marketable-securities/treasury-bonds/

[jad56061]

Sorry high yield savings account vs. a bond

[Anonymous_]

So, what is your question? Which is better?

The yield on a savings account can change, for one thing.

[jad56061]

What is the benefit of a bond for taxes if the interest rate is so low compared to a high yield savings account which is hovering 4.25% vs. bond that's less than 3%? That's what Im wondering because it seems like you don't earn as much money right now if you put in a bond vs. a high yield savings account, even if the number changes.

[Anonymous_]

Bonds are paying over 4.5% currently. Where did you get 3%?

[jad56061]

In the last 10 years these funds have only earned less than 2%

VBTLX

BND

FXNAX

VBILX

[Anonymous_]

You are now referring to bond funds and even then over a longer time frame. 

As interest rates increase, the value of bonds generally decreases (it's an inverse relationship).

All of the funds you mentioned are currently yielding over 3% anyway.

[Anonymous_]

Also, if you go back just a few years, you'd find that your savings account would have yielded well under 1% at that time.

[Opus 17]

There are entire books written about investment strategies.  This is not the place.  But your comparison is apples to oranges.  The average yield of even a high yield savings account over the past 10 years is probably well under 2%, because interest rates and inflation were very low for a long time.  You can't compare a 10 year average performance of a bond fund with the current savings account interest rate.  

Also, the performance of a bond fund has very little to do with the yield of any specific bond.  It also depends on price changes of the bonds, which depends on various market forces.

A bond fund spreads out the risk.  A well managed fund will earn more money over time than a savings account.  The trick is to find that well managed fund.  If 2015-2021 were slow years for bond funds, look for the fund that made 3% instead of 2%.  

[Anonymous_]

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@Opus 17 wrote:

A well managed fund will earn more money over time than a savings account.  The trick is to find that well managed fund. 

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FYI, the funds that @jad56061 mentioned in his previous post are all index funds.