Fund Parameters
- Industry-standard crediting rate formula
- Simplified: assumes constant yield and duration
- Real contracts may have additional reset provisions
- For educational purposes only
Crediting Rate Results
Formula Breakdown
Understanding the Results
| MV/BV Ratio | Status | Effect on Crediting Rate |
|---|---|---|
| > 100% | Above Book | Rate may exceed portfolio yield |
| = 100% | At Book | Rate = Yield - Wrap Fee |
| 95-100% | Slightly Below | Modest reduction from yield |
| < 95% | Stressed | Significant rate reduction |
Understanding Stable Value Crediting Rates
What Is a Stable Value Fund?
A stable value fund is a capital preservation investment commonly found in 401(k) and other defined contribution retirement plans. Unlike money market funds, stable value funds invest in high-quality intermediate-term bonds wrapped with insurance contracts that guarantee participants can transact at book value regardless of market conditions.
How the Crediting Rate Works
The crediting rate is the interest rate credited to participants' accounts. It's recalculated periodically (often monthly or quarterly) based on the fund's market-to-book ratio. When market value falls below book value, the crediting rate decreases to gradually close the gap. Conversely, when market value exceeds book value, participants may benefit from rates above the portfolio yield.
The Role of Duration
Duration determines how quickly the market-to-book gap is amortized. A shorter duration means faster amortization (larger rate adjustments), while a longer duration spreads the adjustment over more time. Most stable value funds target durations of 2-4 years to balance yield and stability.
Wrap Contracts
Wrap contracts are the insurance component that makes stable value "stable." The wrap provider guarantees that participants can withdraw at book value even if market value is lower. In exchange, they charge an annual fee (typically 0.10-0.25%) and impose certain restrictions on fund sponsors to manage risk.
Frequently Asked Questions
Disclaimer
This calculator is for educational and informational purposes only. It uses a simplified model and should not be used for actual investment decisions. Actual stable value fund crediting rates may differ due to contract-specific terms, reset frequencies, and other factors. Consult your plan documents and financial advisor for specific information about your stable value fund.
