Vanguard Limited Term Bond as emergency fund

[WanderALot]

Hello,

I'm looking for someplace other than a money market fund to park my cash. I was thinking about putting it in the Vanguard Limited Term fund. I know it's not FDIC insured, but it's seems relatively stable, and it's tax-exempt to boot. Since it's a short term fund, it should have lesser risk to hikes in interest rates.

I've also considered INGDirect, EE bonds and CDs, but either liquidity or low rates have me leaning towards the Vanguard fund.

Any thoughts? Especially as related to principal risk? Thanks.

 

[wabmester]

I would stick with a money market for an emergency fund. Short-term rates are on the way up, so a fund with a 2% yield and a 2-year duration is pretty likely to return close to zero over the next year (IMHO).

There are a few corporate MMs yielding in the 2.5% range right now (Ford, GM, credit card companies, mortgage lenders, etc).

 

[John Galt]

Well, 2.5 % is easy now for short term money.
Last week I called 3 of my "old reliables" and they were
all 2.5%.. I've been used to getting 3%, but currently have little to invest, so it really is a non-issue
at this time. When I was looking for a home for 100K,
that .5% was important.

John Galt

 

[soupcxan]

ING is paying 2.2% on savings...not tax-free, but FDIC insured. I would stick with that rather than mucking around with a bond fund.