Revisiting the NC State Employees Credit Union Bridge Account

Some may recall my initial excitement about learning about and opening my bridge account at the NC State Employees Credit Union back in April 2008 (If you need a refresher on the basics, check back at that post). I checked back in during June of that year, and it just wasn’t going my way. In fact, the S&P 500 finished down for the first 4 quarters I was in the account so I moved most of my money out and largely forgot about it. However, today a friend who read my story actually went to a NC State Employees Credit Union and opened a bridge account. This along with how far money market interest rates have declined piqued my interest about the viablility of the account again.

I decided the first thing I needed to do was get a little historical perspective on the S&P 500 to see if my results were typical. Luckily, I found a link to the information I needed on NC State Employees Credit Union website in the bridge account disclosure form. Using the information I found there, I was able to download the closing level of the S&P 500 in Excel for every trading day beginning in January 2005. I then deleted out all of the days except for the ones right before and right after each quarter. The next step was calculating the quarterly returns and then determining what the S&P 500 return would translate into for the bridge account (had it been available for this amount of time).

NC SECU Bridge Account Historical S&P 500 Data

DateS&P Index ValueS&P ReturnYour ReturnBridge AccountMoney MarketS&P 500
03-Jan-20051202.08
31-Mar-20051180.59-1.82%0.00% $1,000.00
01-Apr-20051172.92
30-Jun-20051191.331.55%1.55% $1,015.45
01-Jul-20051194.44
30-Sep-20051228.812.80%2.80% $1,043.86
03-Oct-20051226.7
30-Dec-20051248.291.73%1.73% $1,061.91 $1,030.45
03-Jan-20061268.8
31-Mar-20061294.832.01%2.01% $1,083.26
03-Apr-20061297.81
30-Jun-20061270.2-2.17%0.00% $1,083.26
03-Jul-20061280.19
29-Sep-20061335.854.17%3.00% $1,115.76
02-Oct-20061331.32
29-Dec-20061418.36.13%3.00% $1,149.23 $1,061.83
03-Jan-20071416.6
30-Mar-20071420.860.30%0.00% $1,149.23
02-Apr-20071424.55
29-Jun-20071503.355.24%3.00% $1,183.70
02-Jul-20071519.43
28-Sep-20071526.750.48%0.48% $1,189.38
01-Oct-20071547.04
31-Dec-20071468.36-5.36%0.00% $1,189.38 $1,094.17
02-Jan-20081447.16
31-Mar-20081322.7-9.41%0.00% $1,189.38
01-Apr-20081370.18
30-Jun-20081280-7.05%0.00% $1,189.38
01-Jul-20081284.91
30-Sep-20081166.36-10.16%0.00% $1,189.38
01-Oct-20081161.06
31-Dec-2008903.25-28.54%0.00% $1,189.38 $1,127.49
02-Jan-2009931.8
31-Mar-2009797.87-16.79%0.00% $1,189.38
01-Apr-2009811.08
30-Jun-2009919.3211.77%3.00% $1,225.06
01-Jul-2009923.33
30-Sep-20091057.0812.65%3.00% $1,261.81
01-Oct-20091029.85
31-Dec-20091115.17.65%3.00% $1,299.67 $1,161.83 $927.64

If you take a look at the three columns on the right, you can see I decided to take a hypothetical $1,000 invested in each of three accounts. (1)NC State Employees Credit Union bridge account, (2) a standard money market earning a 3% return (delicious by today’s standards) compounded daily, (3) and a no fee no expense no dividend version of the S&P 500. As you can see the bridge account outperformed the money market fund easily. The money market fund would have need a return in excess of 4.15% to beat the bridge account. And, although somewhat artificial, the bridge account destroyed the investment in the S&P 500. I have little doubt that had I run the data using the return on SPY or any other ETF or mutual fund tracking the S&P, the bridge account would have still outperformed.

My takeway is that although the upside is limited, you simply can’t beat the downside protection you get with the NC State Employees Credit Union bridge account. In this interest rate environment, where my primary money market has an APR of only 1.25% per year, it certainly seems like it’s worth the risk of no return in exchange for the chance to get up to a 3% return quarterly. I know I talked about gaming this account in previous posts, but to be honest the $3,000 maximum investment in the account makes it not really worth my while. With all this in mind, I will be moving $3,000 from my emergency fund over to the brdige account as a long-term investment. Again there’s no downside risk, and there’s no limit to the number of transactions you can make so I can always transfer the money back immediately if some even occurs that requires it.

I’d love to know your thoughts!

Read the update on the NC SECU Bridge Account and see the actual returns.

Posted in Investing, Savings Tagged with:
  • dwayne

    Is this correct: If the S&P is down for the quarter, you get zero return? So, when comparing to the SECU money market — at maybe 1.5% or so — you’re basically betting on more black quarters than red?

  • Dwayne,

    That is correct. If the S&P is down for the quarter, you get nothing. However, the upside capped at 3% is quite nice. If you get 4 quarters of 3%+ gains in the S&P, then you’re talking a 12% APR. The historical data suggests that is not likely, but that this account certainly has the potential to outpace a standard money market with no downside risk.

    slug

  • dwayne

    Ohhh, I skimmed the original post too quickly. I was thinking 3% cap for the year. Up to 3% per quarter is outstanding for essentially a no-risk investment!

    So, to beat a money market, you’d really only need one quarter in which the S&P beats the annual APR of the money market account.

  • Murs

    Forgive me, I’m not math inclined but I’ve been contemplating opening a bridge account. I like your chart, for an amount under the 3k cap it is great, but if you had more than 3k to invest would you not be better of leaving it in a money market where at a certain point the higher investment ceiling will overpower the interest rate?

    • Murs, I simply use the bridge account as another method of diversifying my cash accounts. You can use money market accounts, CD’s, and the bridge account. With interest rates in money market accounts (1.25%) and CD’s so low, one has the potential for the $3k investment in the bridge account to outperform the yearly APR of the money market account easily in a quarter. Basically, you only need 1 positive quarter in 4, and you’ll probably outperform the money market. Does this answer your question?