NC State Employees Credit Union Bridge Account Historical Returns

Back in August 2010, I recommended a move into the NC State Employees Credit Union Bridge Account as a good risk compared to the low returns offered in traditional money market accounts. That has turned out to be a prescient call since it’s paid off at 3% returns for the past 2 quarters!

For those of you unfamiliar with the NC State Employees Credit Union Bridge Account, it offers a riskless opportunity to invest in the S&P 500. To quote a popular personal finance blogger (me!),

The interest rate on this account is variable and pays quarterly. It varies with the movement of the S&P 500 fund. If the S&P 500 is up for the quarter you receive that return (up to 3%). This may not seem like much, but it translates to a 12.00%APR/12.55%APY. Not bad given current money market and CD rates.
But Slug, what happens if the S&P 500 has another quarter like this last one where it fell almost 10%? Nothing happens. That’s right, your money just sits there and loses no value. You gain no interest, but in exchange you aren’t exposed to any downside in the market
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Sounds good, right? Back in August I also tried to construct a proxy for historical returns. It turns out though all I had to do was go to my local NC State Employees Credit Union, and I could have their actual returns. Let me present those here, and then we can talk through them.

Quarter EndingS&P 500 Return$1,000 Invested in S&PBridge Account Return$1,000 Invested in Bridge
7/2/20075.8%$1,058.103.0%$1,030.00
10/1/20071.6%$1,074.611.6%$1,046.07
1/2/2008-3.7%$1,035.060.0%$1,046.07
4/1/2008-9.9%$932.380.0%$1,046.07
7/1/2008-3.2%$902.270.0%$1,046.07
10/1/2008-8.9%$822.150.0%$1,046.07
1/2/2009-22.6%$636.670.0%$1,046.07
4/1/2009-11.7%$562.370.0%$1,046.07
7/1/200915.2%$647.963.0%$1,077.45
10/1/200915.0%$745.033.0%$1,109.77
1/1/20105.5%$785.933.0%$1,143.07
4/1/20104.9%$824.203.0%$1,177.36
7/1/2010-11.9%$726.450.0%$1,177.36
10/1/201010.7%$804.333.0%$1,212.68
1/1/201110.2%$886.373.0%$1,249.06

A couple of caveats. On the S&P 500 side, this ignores dividend reinvestment. On the Bridge Account side, it ignores daily compounding. Even with both of these considerations, you would definitely have been better off in the NC State Employees Credit Union Bridge Account. Unfortunately I do not have access to NC SECU money market rates over the same time period. My educated guess would be that it would outperform the bridge account for 2 reasons. First, the Bridge Account has only paid a dividend in 8 of the 15 quarters. The rest of the time you got nothing. Boy do I remember those days. Second, back in ’07 and ’08, the opportunity cost of putting $3,000 in the Bridge Account was much higher because the money market rates were almost twice what they are today.

So, what’s my recommendation now? Well, I’m going to stay full invested in the Bridge Account ($3,000) and recommend you do the same. The S&P 500 has had a good run, but I think it will still have a positive move in 2011. Remember you only need 1 quarter where the S&P 500 returns better than 1.25%, and you will have already received basically the same amt. of interest in your Bridge Account as you would in the NC State Employees Credit Union money market account over all of 2011 (assuming the 1.25% MMA rate remains constant).

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