Advertisement
savings

Why You Should Hold Off on Buying Savings Bonds

Low interest rates mean low yields on savings bonds.

With interest rates scraping bottom, it’s tough to make a case for buying savings bonds now. New I-bonds are yielding zilch, combining a fixed rate of 0%, which lasts the life of the bond, with an inflation rate, reset semiannually, that has dipped to –0.8% (the Treasury doesn’t allow the combined rate to drop below zero). Series EE bonds pay a fixed 0.3%. You can’t redeem either type of bond within a year of the purchase date, and if you pull out the money before five years have passed, you’ll be penalized the last three months’ interest.

Advertisement - Article continues below

If, however, you’re determined to put money into a savings bond—say, because you want to give one as a gift—go with an EE bond, advises Jackie Brahney, marketing director of SavingsBonds.com. The Treasury will adjust the bond’s value to double the original issue price after 20 years if interest payments have not raised the bond’s value to that level. That’s a minimum return of 3.5%.

Because the fixed-rate component on new I-bonds is so anemic (the Treasury hasn’t issued one with a fixed rate of 1% or more since 2007), the bonds offer little opportunity for growth in your money’s buying power, says Greg McBride, chief financial analyst for Bankrate.com. If you own an I-bond, you don’t have to worry about a loss of principal because the combined rate never falls below 0%. But the combined rate can fall below the fixed rate. A bond that was purchased in May 2001, for example, has a fixed rate of 3%; accounting for the –0.8% inflation rate, the current combined rate is only 1.38%.

Advertisement
Advertisement - Article continues below

For now, most savers who want a safe place to park cash are better off using a high-yielding savings account or certificate of deposit.

Advertisement

Most Popular

What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020
65 Best Dividend Stocks You Can Count On
stocks

65 Best Dividend Stocks You Can Count On

These 65 Dividend Aristocrats are an elite group of dividend stocks that have reliably increased their annual payouts every year for at least a quarte…
July 8, 2020
Find a Great Place to Retire
happy retirement

Find a Great Place to Retire

Our cities provide plenty of space to spread out without skimping on health care or other amenities.
July 2, 2020

Recommended

2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 10, 2020
65 Best Dividend Stocks You Can Count On
stocks

65 Best Dividend Stocks You Can Count On

These 65 Dividend Aristocrats are an elite group of dividend stocks that have reliably increased their annual payouts every year for at least a quarte…
July 8, 2020
13 Best Vanguard Funds for the Next Bull Market
mutual funds

13 Best Vanguard Funds for the Next Bull Market

Optimistic that the bounce since March is indeed the start of the next bull market? Here are the 13 best Vanguard funds to help you make the most of i…
July 7, 2020
3 Municipal Bond Funds for Rich, Tax-Friendly Yields
Investing for Income

3 Municipal Bond Funds for Rich, Tax-Friendly Yields

Municipal bond funds allow you to enjoy the benefits of tax-exempt income. By investing CEFs, you can sweeten the pot even further.
July 2, 2020