Why You Should Hold Off on Buying Savings Bonds
Low interest rates mean low yields on savings bonds.
- (opens in new tab)
- (opens in new tab)
- (opens in new tab)
- Newsletter sign up Newsletter
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.
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 (opens in new tab). 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 (opens in new tab). 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%.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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.
Lisa has spent more than15 years with Kiplinger’s Personal Finance and heads up the magazine’s annual rankings of the best banks, best rewards credit cards, and financial-services firms with the best customer service. She reports on a variety of other topics, too, from retirement to health care to money concerns for millennials. She has shared her expertise as a guest on the Today Show, CNN, Fox, NPR, Cheddar and many other media outlets around the nation. Lisa graduated from Ball State University and received the school’s “Graduate of the Last Decade” award in 2014. A military spouse, she has moved around the U.S. and currently lives in the Philadelphia area with her husband and two sons.
-
-
Is Retirement in 2023 Still Possible?
Yes, it is, if you have a customized plan specific to your retirement. If you do, you’re in the minority, though, so here are some ways to develop that plan.
By Nicholas J. Toman, CFP® • Published
-
Top Money Market Accounts 2023
Money market accounts are interest-bearing accounts at a bank or credit union, typically paying high interest rates. Here are the best right now.
By Erin Bendig • Published
-
Stock Market Holidays in 2023: NYSE, NASDAQ and Wall Street Holidays
Markets When are the stock market holidays? Take a look at which days the NYSE, Nasdaq and bond markets are off in 2023.
By Kyle Woodley • Last updated
-
Stock Market Trading Hours: What Time Is the Stock Market Open Today?
Markets When does the market open? While it's true the stock market does have regular hours, trading doesn't stop when the major exchanges close.
By Michael DeSenne • Published
-
Bogleheads Stay the Course
Bears and market volatility don’t scare these die-hard Vanguard investors.
By Kim Clark • Published
-
Best Cash Back Credit Cards March 2023
Smart Buying Looking for the credit card that pays the most cash back? These lenders may pay hundreds of dollars, with minimum hassle.
By Lisa Gerstner • Last updated
-
I-Bond Rate Is 6.89% for Next Six Months
Investing for Income If you missed out on the opportunity to buy I-bonds at their recent high, don’t despair. The new rate is still good, and even has a little sweetener built in.
By David Muhlbaum • Last updated
-
What Are I-Bonds?
savings bonds Inflation has made Series I savings bonds enormously popular with risk-averse investors. How do they work?
By Lisa Gerstner • Last updated
-
Your Guide to Open Enrollment 2023
Employee Benefits Health care costs continue to climb, but subsidies will make some plans more affordable.
By Rivan V. Stinson • Published
-
Watch Out for Flood-Damaged Cars from Hurricane Ian
Buying & Leasing a Car In the wake of Hurricane Ian, more flood-damaged cars may hit the market. Car prices may rise further because of increased demand as well.
By Bob Niedt • Last updated