US Savings Bonds

Archive for November, 2008

Series EE Savings Bonds Tax-Free Rollover to Education IRA

The interest rate on Series EE US Savings Bonds are low

Many people have substantial assets locked up in Series EE US Savings Bonds, earning a very low interest rate.

In order to better the interest rates from Series EE US Savings Bonds, they may not want to diversify away from the Savings Bonds to get an enhanced rate of return because the growth in the Series EE US Savings Bonds will be taxed at ordinary income tax rates upon redemption.

Rollover Series EE US Savings Bonds proceeds into Educational IRA

But, they may be eligible to redeem the Series EE US Savings Bonds and roll the proceeds of the Series EE US Savings Bonds into Education IRA s for their children, if certain requirements are met.

The redemption of the Series EE US Savings Bonds will be tax free, and the growth in the Education IRA, as always, is tax free (not merely tax deferred), so long as the assets are used for qualified education expenses.

No more than $2000 may be contributed per year on behalf of any child.

Any Series EE US savings bond proceeds not rolled over into Education IRA s will be subject to tax.

Question: Best interest rate, UK?

Where in UK can I get the best interest rate (not isa please). I want to invest £100,000 for one year. Also do I go for bonds or savings account – not sure of the difference… Thanks for your help
thanks for the tip on blue chip shares. How and where do you buy them?

Answer: Martyn Lewis’s site is another good place to see a broad range of investments – see link below

Or money supermarket, as was already said.

You have three basic options:

Interest-bearing account: very safe – you are guaranteed to get your initial investment back, plus a little interest – but the best returns.

Bonds – return is based on one (or, in the case of a fund, several) companies paying back a loan. Slightly better return, but you have two risks: (1) the company goes bust (probably very unlikely), or (2) interest rates go up. The reason that bond prices fall when interest rates go up is that they have a fixed interest rate on them, so when other interest rates are higher, they become less attractive.

Shares – you buy a slice of one or (especially with a fund) a number of companies. These give the highest return, but are also the riskiest, because share prices in a given company can go up or down very quickly and by large amounts.

Within shares you can again opt for more risk (eg small companies, or companies in a developing region such as China or India) and should get more return – but have more chance of losing a lot.

If you want to invest in shares or bonds and are inexperienced, I would definitely recommend that you buy into one or more funds, where your investments are pooled with those of many other people and managed by a professional. You lose a little return, but avoid a lot of hassle.

NB don’t buy funds direct as they will charge you an initial fee of around 5%. buy instead through a “share supermarket” or online broker and reduce this to more like 1%. I use Hargreaves Lansdown and find them good, but others may be as good or better – choose one you feel comfortable with.

If I were investing that – and this isn’t advice for you, it’s based on my preferences and guesses about the future – I’d split it up and invest:
£40,000 in a high-interest savings account
£40,000 in a blue-chip fund (one specialising in large UK companies)
£20,000 in an emerging markets fund in China, India or Latin America.

That way I’d get a reasonable return – and a chance that my “wild card” fund will, say, go up by 50% (as some of mine have over the past year or so) – while keeping most of my investment relatively safe.

Best saving: How to get the most out of your money

Question: I want to buy us Savings Bonds for my kids. If I pay $100 what will get me the best return in 20 or 30 years?

an EE savings Bond or an I savings Bond? I am not good at this investing thing. Thank you for your help. I know that if I pay $100 for an EE Bond that the face value can be $200. But this is all confusing. What is the best one to buy?
What one would you buy? an EE or an I savings bond for your kids. All I know is that an e bond was given to me when I was born and they apid like $19 for it with a face value of $25. I just cashed it in 30 years later for $136. that is not bad. I want to get the same thing for my kids but do not know which is better an EE or an I Bond since the E bond is no longer available.

Answer: the best Bond to buy is the one which have the highest interest rates and also the shortest withdraw time. then using the interest rate you can calculate the added value to the bonds after T years using the following formula :

X(T) = a * (1 + b) ^ (T/t) where : a = initial value of bond, b = growth factor (in this case interest rate), T = the year of withdraw and t = in this case is 1.

I should also mention that by withdraw time, I mean the minimum time that the contract doesn’t allow you to withdraw your money.

EDIT : let me give you an example, if the initial price of bond is $100 as you suggested, and its intrest rate, lets say it is 15% per year, and you are planing to withdraw your bond in 20 years time, using the above formula, you will be able to withdraw :

100 * ( 1 + (15/100)) ^ (20/1) = $1636.65

now if you withdraw it in 30 years, it will be :

100 * ( 1 + (15/100)) ^ (30/1) = $6621.18

it is also important to take inflation rates into account as well, cause you should also consider that $6600 in 30 years time will have much lesser value than now.

EDIT: in the case of which one of the EE or I Bonds are better, it really depends on how much you would like to invest per year, I suggest reading : http://www.journalofaccountancy.com/Issues/2004/Sep/EeVsIBondsWhichAreBetter.htm

which I think is a very accurate comparison between the two.

generally, I think in long term I Bonds tend to be better, but it might be a different case for you, so please read that article.

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