VUSTX has two advantages over a CD:
-If interest rates drop, its value will increase
-You can sell it whenever you want with no penalty

It has the disadvantage that if interest rates increase, its value will decrease.

You're right that interest rates are more likely to increase than decrease, so if you know you're not going to need the money for a year, do the CD. You might also look at short term bond funds, which are not nearly as vulnerable to capital losses following interest rate increases. Money market funds aren't that bad either--ING's is paying something like 3.15%.