BND ETF as a savings account?

[Fiddlegrrl]

With bank accounts (online and brick & mortar) having horrendous interest rates, I'm trying to find another lowish-risk solution for monthly, long-term savings.

I bought BND back in March, and it has so far gained a modest 1.31%, much better than the .001% offered by the banks. (I'm not from the US and so don't have to worry about US taxes.)

So I'm trying to weigh the pros and cons of just using this, and possibly a second low-risk bond ETF, for my general savings accounts. I don't plan on needing these to be liquid any time soon, but of course I'd need to be able to dip in if necessary.

Does anyone have any advise for what you're doing with your savings? Am I missing any big risk that might pop up with using bong ETFs as savings accounts?

[RetireJapan]

Just to review a few key differences between BND and a bank account:

BND can be volatile, and the value can change month to month (both up and down)
BND has transaction costs (you have to pay fees to buy and sell it)
BND pays dividends (these are taxed at 10% in the US and either 0 or 20% in Japan -the former in a NISA account)
BND is not instantly accessible (it will take at least a few days between selling and you getting the cash)

[Kanto]

With bank accounts (online and brick & mortar) having horrendous interest rates, I'm trying to find another lowish-risk solution for monthly, long-term savings.

I bought BND back in March, and it has so far gained a modest 1.31%, much better than the .001% offered by the banks. (I'm not from the US and so don't have to worry about US taxes.)

So I'm trying to weigh the pros and cons of just using this, and possibly a second low-risk bond ETF, for my general savings accounts. I don't plan on needing these to be liquid any time soon, but of course I'd need to be able to dip in if necessary.

Does anyone have any advise for what you're doing with your savings? Am I missing any big risk that might pop up with using bong ETFs as savings accounts?

The traditional investing advice is to have 4-6 month savings in cash. Once you reach that threshold you can begin to invest further savings.

If you already have that, and you are planning for long term "safe" investment, why not follow the basic advice of World Stock ETF+Bond ETF for a long term hold in your NISA? (Look at VT\or eMaxis slim all country)

No Mutual fund is safe in the "Short term", they are safe for medium to long term investors who can wait to exit the market when it most benefits them. They only trade once, at the end of the day, after the market closes.

[adamu]

BND pays dividends (these are taxed at 10% in the US and either 0 or 20% in Japan -the former in a NISA account)

It's still taxed at 10% in a NISA too.

They only trade once, at the end of the day, after the market closes.

If you are talking about ETFs, that's not correct. They are be traded freely on the stock exchange during operating hours. It's mutual funds that are traded once a day.

Does anyone have any advise for what you're doing with your savings? Am I missing any big risk that might pop up with using bong ETFs as savings accounts?

The risk is that you lose a large chunk of your investment with no warning. That doesn't happen with cash savings (unless you live in Greece).

Bonds are less volatile than stocks, but they are still a high risk investment. The key difference between savings and investments is that with investments you are taking risk (that your investment goes down) for the chance that you will get more than with savings. In the long run, the value probably goes up. But you need to be able to ride out the dips, so you should only invest money when you have time on your side. If you need money in the short term, you can be trapped selling at a loss. So as Kanto said, it's good to have any emergency savings in cash, in a bank account (yes, the interest rates are terrible - that's the price of security). Then look into stocks + bonds for funds that can be put away for 5 or 10 years or more.

[RetireJapan]

BND pays dividends (these are taxed at 10% in the US and either 0 or 20% in Japan -the former in a NISA account)

It's still taxed at 10% in a NISA too.

That was supposed to be in the 10% US + 0-20% Japan thing -apologies if unclear

[eyeswideshut]

I would also flag that BND is a US$ bond ETF so, assuming you are saving in JPY, you may want to confirm whether or not there is a currency hedged version as the exchange rate between USD and JPY can fluctuate significantly. Also to add my voice to others, the bond market is experiencing particularly high volatility these days (largely positive recently but that may change) and so there is a significant risk of capital depreciation should interest rates suddenly spike up. If you're a long term saver that shouldn't bother you but it is a risk if you are short term.

[Kanto]

I would also flag that BND is a US$ bond ETF so, assuming you are saving in JPY, you may want to confirm whether or not there is a currency hedged version as the exchange rate between USD and JPY can fluctuate significantly. Also to add my voice to others, the bond market is experiencing particularly high volatility these days (largely positive recently but that may change) and so there is a significant risk of capital depreciation should interest rates suddenly spike up. If you're a long term saver that shouldn't bother you but it is a risk if you are short term.

How does this Bond EFT look to you? It is currency hedged.

https://www.rakuten-sec.co.jp/web/fund/ ... 90C000DXF9

[Fiddlegrrl]

Thanks for the replies. I already have my savings stash (4-6 months) in cash living in the bank. I appreciated the comment from @adamu, about how the terrible interest rates are the "price of security" - it's a good way of thinking about it that helps me cringe less when I see the yearly interest in my account.

So I guess the takeaway is that we're stuck with the zero interest savings accounts, yes? I think I was hoping for someone to tell me a better way to come a little closer to meeting inflation with my savings

@Kanto - thank you for the suggestion! I had looked into the Tawara No-load before, but was a bit put off by the management costs. For a currency-hedged bond fund though, I recognize that I'm not going to find much cheaper.

I will work out some numbers and do some comparisons. I realize that's not the way we're supposed to deal with our savings, but because this is cash that will be put towards a more mid-term goal (financing in 7 years or so), earning bank rates just won't do.

If anyone hears of a decent high interest savings account (or something of that ilk), please let me know

[Kanto]

Thanks for the replies. I already have my savings stash (4-6 months) in cash living in the bank. I appreciated the comment from @adamu, about how the terrible interest rates are the "price of security" - it's a good way of thinking about it that helps me cringe less when I see the yearly interest in my account.

So I guess the takeaway is that we're stuck with the zero interest savings accounts, yes? I think I was hoping for someone to tell me a better way to come a little closer to meeting inflation with my savings

@Kanto - thank you for the suggestion! I had looked into the Tawara No-load before, but was a bit put off by the management costs. For a currency-hedged bond fund though, I recognize that I'm not going to find much cheaper.

I will work out some numbers and do some comparisons. I realize that's not the way we're supposed to deal with our savings, but because this is cash that will be put towards a more mid-term goal (financing in 7 years or so), earning bank rates just won't do.

If anyone hears of a decent high interest savings account (or something of that ilk), please let me know

May I ask why you are adverse to stock index funds?

For example Rakuten Global (Vanguard VT) or Emaxis Slim All Country
https://www.rakuten-sec.co.jp/web/fund/ ... 90C000FHC4
https://www.rakuten-sec.co.jp/web/fund/ ... 90C000H1T1

A portfolio of 50% All world and 50% Indexed/Hedged Bonds would be considered fairly conservative for anyone under 50.

If your risk appetite is really low, you can adjust the percentages.

[adamu]

For example Rakuten Global (Vanguard VT)

Can't let anyone mention that Rakuten fund without pointing out the VT expense ratio is 0.08% but that wrapping fund is 0.22%. So you're paying Rakuten 2.75 as much as Vanguard for the privilege. They better give you a lot of points.

So I guess the takeaway is that we're stuck with the zero interest savings accounts, yes? I think I was hoping for someone to tell me a better way to come a little closer to meeting inflation with my savings

Money market funds are something I've been meaning to look into. Don't really know much about them yet. Nothing comes for free though, so there has to be more risk there too!