Emergency Money in Bond Mutual Fund?

Any opinions about storing my emergency fund money in a short term bond fund like the Vanguard Short-Term Bond Index Fund or USAA's Tax Exempt Short Term or GNMA funds? Savings accounts, money markets, and CD rates are so low I find it painful to keep money there.

thanks
ds

I have 90% of my emergency fund in the Vanguard GNMA fund. I looked at it and was willing to take the slight risk for the much better return. I have access to it as quick as I did with my other online savings accounts with ING and others.

Dave, if you're talking about Vanguard Short-Term Bond Index (VBISX), it works as a 'cash' alternative. Just be aware that it will move with the general bond market so it carries risk.

Morningstar gives it 5 stars and names it an 'analyst pick'. More from the subscriber section:

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Role in Portfolio: Core. This fund is a strong choice to anchor fixed-income portfolios with long investment horizons. It can also be a supporting player for investors seeking to limit volatility among their bond holdings. However, investors should bear in mind that the fund lacks mortgage exposure.

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www.morningstar.com

Richard Moroney recommends VFSTX when allocating to cash.

Thanks guys - that's exactly what I was looking for!

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Originally Posted by Jackbnimble

I have 90% of my emergency fund in the Vanguard GNMA fund. I looked at it and was willing to take the slight risk for the much better return. I have access to it as quick as I did with my other online savings accounts with ING and others.

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+1 Jack and Bullit! Nice post and valuable insight!:D