US Savings Bonds

Posts Tagged ‘savings bonds rates’

Question: What is the best way to invest savings bonds?

My kids have well meaning grandparents who send savings bonds for birthdays and holidays and I have no idea what to do with them. I have thought about putting them in a mutual fund at some point. Does anyone know what amount of money you have to have to start one up?

Answer: Most Mutual Funds require minimum amounts of around $2,000 to $3,000 to open an account. If you’re thinking of redeeming the savings bonds and using the money to open a mutual fund account, beware of the early redemption penalty on the bonds (3 months interest). And they cannot be redeemed until they are at least 12 months old. If your kids are under 18, the mutual fund company will want you or another parent to sign the account papers, since the kids won’t be old enough to enter into legal contracts themselves.

If the savings bonds are small amounts (like $25 or $50), and the total is nowhere near $2,000 or $3,000, there’s nothing wrong with just letting the savings bonds accrue interest. While the interest rates aren’t high, they are reliable (because the U.S. government stands behind the bonds). In 15 years time, they’ll probably compound into a nontrivial value. Remember the power of compounding (see the webpage listed below). Maybe the bonds can help the kids cover their college expenses.

Bond Market : How Do Saving Bonds Work?

Question: How do Savings Bonds Interest rates work?

Are they fixed interest rates in that when you buy it, it keeps increasing for 30 years at that rate? Or are they ever changing, depending on the economy.

Therefore, do you get the most if you cash out when the economy is good or bad, or should you just wait until the end of the 30 year period?

Answer: Lets say you buy a bond today at 3.89% interest.
Note that interest rates could easily double within a couple of years.
Say in 3 years the 30 year bond is at 7%.

If you try to sell that 3.89% bond, no one on earth will want to buy it.
You will take a hit on your principal.

Google “Bond Bubble”
Only buy it if you KNOW you will hold it the 30 year term.
Consider cd’s at your broker
I found a 10 year paying 3.4% interest – Schwab and Fidelity have the best.
They are like bonds when they are brokered – so be careful if you don’t plan to hold it.
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Choose the right savings account