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Standout Short-Term Bond Funds in a Low-Yielding World

For yield-starved investors, these offerings are worthy considerations.

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With interest rates at historic lows, investors who are seeking to pocket higher yields with minimal risk are facing slim pickings. Although there is a growing frustration with the ultralow yields on cash, it's worth noting that there's no true substitute for a money market fund or a certificate of deposit when it comes to a risk-free place to park your cash. And in this article, Christine Benz notes that it pays to be patient with lower yields--especially with the cash in your emergency fund that you cannot afford to lose.

But longer-term investors who have adequate emergency reserves parked in cash might consider stepping out on the risk spectrum by venturing into a high-quality short-term bond fund. Granted, the yields aren't appreciably better right now than what you'd get with a money market fund; Vanguard's Short-Term Bond Index--one of the better offerings in the group--has an SEC yield of just 0.80%. But if bond yields head up in the future, these funds will be able to swap into higher-yielding securities.

With that in mind, we turned to the  Premium Fund Screener to home in on noteworthy taxable and municipal short-term bonds. We immediately streamlined our results by calling up only the distinct portfolios of noninstitutional funds that required an initial investment of no more than $5,000. We then sought no-load offerings with expense ratios lower than their respective category averages.

Esther Pak does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.