🛡️ G Fund at 4.25% — Where It Fits as Rate Cuts Loom

The G Fund is paying 4.25% this month, down slightly from August.

For many federal retirees, that looks like a safe harbor in uncertain markets. But with the Federal Reserve expected to begin cutting rates soon, the way you use G now matters more than the number on the page.

How It Actually Works

The G Fund is unique. It invests in special-issue Treasuries that guarantee both principal and interest.

That means your balance never moves down with the market, and every dollar earns the posted monthly rate.

Contrast that with the F Fund, which tracks a broad bond index. The F Fund can rise in value when yields fall, but it can also fall when rates rise or when credit spreads widen.

If the Fed does start easing policy this fall, the G Fund’s yield will gradually adjust lower.

The F Fund, by contrast, may gain from falling yields — but only if you’re comfortable holding through the inevitable price swings.

Three Practical Moves

1. Build your near-term bucket. If you’re retiring in the next year or two, keep at least two years of expected withdrawals in the G Fund. That’s your safe spending runway.

2. Balance the bridge years. For spending needs three to seven years away, a mix of G and F works best. G provides stability, while F gives you a chance to benefit from falling rates.

3. Stay the course for growth. With horizons beyond seven years, don’t over-anchor to today’s 4.25%. Equities and the F Fund may outpace G as rates come down. Let your L Fund or target mix do the heavy lifting.

Markets are debating whether the Fed will deliver a single cut or a series.

Watch the yield curve: short-term yields drive the G Fund’s posted rate, while long-term yields matter more for the F Fund.

And remember, in a credit scare, F can stumble even if Treasuries rally — another reason G is still the portfolio’s anchor.

The bottom line?

The G Fund is your safe haven, but it isn’t a free lunch.

As rates fall, its yield will too. Use it to protect near-term cash needs, combine it with F for the middle years, and leave your growth allocation intact for the long haul.

Best,
—FWR