TSP G-Fund – Interest Rates Could be Cut
This fall, Congress is having a fierce debate on our national budget. Many areas could gain or lose funding, and one of those that could lose money, is the TSP G-Fund.
The G-Fund is a safe and reliable investment option available to federal employees. The principal and interest is guaranteed by the Federal Government. The interest rate is equivalent to a long term bond, allowing investors to get long term rates on a short-term security. The interest rate of these securities resets monthly and is based on the weighted average yield of all outstanding Treasury notes and bonds with 4 or more years to maturity.
In 2014, the G Fund had an annual return of 2.31%. In comparison to the Vanguard Admiral Treasury Money Market Fund which returned .01 % in 2014. While 2.31% may not excite there are not any other instruments guaranteed by the government, that pay out similar interest rates outside of TSP. This is a main focus in the official report of the Committee on the Budget.
“Securities within the G-Fund are not subject to risk of default. Payment of principal and interest is guaranteed by the U.S. Government. Yet the interest rate paid is equivalent to a long-term bond. As a result, those who participate in the G Fund are rewarded with a long-term rate on what is essentially a short-term security. This could save up to $32 billion over 10 years.”
That basically means that since there is no risk of default on the TSP G-Fund, the government is not obligated to pay as much interest. There are funds available that have a higher interest than the G-Fund, but also have more of a risk. Until now, the G-Fund offered the best of both worlds, a decent rate of interest with high security, yet that might no longer be the case in a matter of months.
Funding for the Federal Government is set to run out September 30th, leaving them with two choices. Figure out the budget before that, or have the government shutdown. The government needs to cut spending in some areas, that’s for certain, and the TSP G Fund continues to be an ongoing threat.
To find out more, click here
To read the official bill proposal, click here
