Investments are often graded via something called the "rate of return". From the rate of return one can calculate how much the investment makes on the dollar after a certain amount of time. For example, an investor puts $100 into a savings account which has an annual rate of return of 3%. After one year, the investor expects to get $103. Of course, the investor may have opted to withdraw from the investment much earlier, which usually means some reduced return as prorated by the length of the investment.

But not all financial instruments have rates like CDs and savings accounts. The ones that do are exemplified by government bonds, bank accounts (and the CDs discussed above). The rest of the universe of financial instruments such as securities, stocks, and high yield mutual funds do not have rates. An investor who puts money into a share of stock should expect the return of a fixed sum. Again, a hypothetical investor puts $100 into buying some shares of a company. After a year period, those shares can be anywhere in value (within reason), such that the investor may have even lost money.

Mutual funds behave similarly to stocks as each fund is a compilation of several kinds of stock. The return of the fund will go up and down in the same way that its component stocks fluctuate. Given this information, some investors may finally understand why financial companies keep advertising "fund rates". Some companies even broadcast that they offer high yield mutual funds, but the definition of high yield mutual fund is unclear.

The rates for funds advertised by financial institutions is not really a rate, but rather a historical rate of return. Usually mutual funds with especially strong performances will get their "rates" advertised. The caveat is that the rate is entirely historical, and may (perhaps even likely) be completely different the coming year. A historical rate is in short an expression of how well a fund did in the past, but not necessarily in the future.

Why do fund rates fluctuate like that, sometimes going negative in certain years? One reason is as above, that the value of the underlying securities (the stocks) changes all the time as the fortunes of each company changes. This is by far the biggest contributor to why the value of stocks and mutual funds is so volatile. Another reason is that companies often pay "dividends". Occasionally a company that has particularly high profits for a quarter or a year will decide to reward its shareholders, or the investors who hold shares of stock. Profits distributed as rewards as known as dividends, which usually increase the price of each share in the fund.

The key point to remember is that rates, for example of stock, bond and GNMA mutual funds, are only historical rates, and are not the same as rates for fixed income securities like savings accounts, bonds and certificates of deposit. High yield mutual funds should also be interpreted in this light.