Choosing cash/short term bond/bank/cd for low risk money

[lazyday]

Am thinking ahead for January when I'll need a place to put new taxable money.

Rates and situations might change, but here's my thinking today:

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ibonds
+ good return for no risk: 1.2%+cpi
+ rate locked 30 years, but can sell after 1 year
(protection against real rates dropping below 0)
+ ACH link to other accounts
+ tax deferral of interest
- can't sell first year
- small penalty first 5 years

EmmigrantDirect
+ currently 4% with no risk
+ ACH link to other accounts
- may have to get rid of if current rates turn out to be a tease

Individual TIPS, such as 5 year bond
+ good risk/return (1.6%+cpi, 5yr's duration under 3 years?)
- fees to buy, except at auction with certain brokers
- fees when I sell before maturity
- lose some $ to spread when sell?

VFSTX vanguard short term investment grade
+ over the long term, usually has good risk/return
+ checkwriting and ACH link to external accounts
- risk/return 4.2% currently seems inferior to most other options
- $10/year fee if under $2500

VIPSX vanguard inflation protected
+ checkwriting and ACH link to external accounts
- high risk (7 year duration) but yield same as 5yrTIPS
- $10/year fee if under $2500

TIP ishares tips
+ slightly shorter duration than VIPSX
- duration is still long, about 6 years, but yield same as 5yrTIPS
- pay spread and commissions when buy and sell

CD's
- don't know of any that seem better to me than combining above options

Money market
- lower return and higher risk than EmmigrantDirect
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Am considering either:

1) 1 year of expenses in EmmigrantDirect, and rest in ibonds

or,

2) 1 year of expenses in VIPSX, and rest in ibonds


My first choice would be to combine 5yrTIPS, ibonds, and a little EmmigrantDirect, but the fees (and spread?) on selling the TIPS, having to wait til the April auction, and opening another brokerage account ruins this option for me.

I don't like the exposure to interest rate risk in option 2, but at least it's real rate exposure, not nominal. Actually, the risk is less of a problem than feeling I'm not being compensated for the risk.
One might say I also get a diversification benefit, with the chance to gain if real rates drop. But, I already have 15% of portfolio in PCRIX which holds intermediate TIPS, and I feel intermediate-long TIPS yields might be low today.

http://www.bloomberg.com/markets/rates/
http://flagship2.vanguard.com/VGApp/hnw/FundsSnapshot?FundId=0119&FundIntExt=INT
http://www.ishares.com/fund_info/detail.jhtml;?symbol=TIP
http://www.emigrant-direct.com/index.php

(Crossposted on Raddr's board)

 

[wabmester]

Go with i-bonds, but wait for the fixed rate change in November.

Personally, I prefer i-bonds and TIPS to VIPSX. Why pay for annual fund expenses when you can buy and hold TIPS/i-bonds for free?

 

[lazyday]

Why pay for annual fund expenses when you can buy and hold TIPS/i-bonds for free?

Since much of the money will need to be spent within one year.
TIPS could make sense if $ amounts were larger, but fees and other negatives above make me consider VIPSX.

 

[wabmester]

I didn't realize your holding period was less than a year. In that case, neither TIPS nor VIPSX makes much sense. They are both subject to short-term volatility. Stick with a money market for anything you need to use in less than a year, and perhaps i-bonds if you plan to hold at least one year.