No. of Recommendations: 1

The rates on the current series of EE bonds is fixed at 3.2% and are purchased for half of their face value, a $1000. EE Bond would cost $500. The interest rate is guarenteed for 20 years. The Treasury can set a new rate for the last 10 years of the bond's 30 year life. Therefore, it's not completely possible to calculate the final value after 30 years.

The Fixed rate of an I-Bond is set for the 30 year life of the bond at the rate in effect at the time of purchase, currently 1%. This rate never changes which has caused the I-Bond to lose favor as an investment. The variable component of the I-Bond is based on the CPIU and is reset every 6 months on May 1 and November 1. This is currently 5.73% which is added to the fixed rate to give a composite yield of 6.73%. Remember that except when redeemed because of major natural disasters, Savings Bonds can't be redeemed for one year after purchase. Also, if you redeem them prior to 5 years, there is a 3-month interest penalty. They are intended as a long range investment.
This makes it very questionable as to whether or not EE are a viable investment vehicle if inflation should accelerate. The I-Bond is better, but I still would like to see the fixed rate increased. At this time, short term CD's of 1 year might be a better place to park funds because they don't incur the 3-month interest penalty when they mature in one year and by then there may be a clearer picture as to whether I-Bonds have become attractive again.

Just my opinion, but I know that the Fool Community has smart enough people to present you with good alternatives.

Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.