The Motley Fool has been helping ordinary people become better
investors for nearly two decades. This month, we're reaching out
to millions of investors to
help guide them in their quest toward financial
knowledge and independence
Along those lines, I've explored a range of different areas of
the investing world. Historically, many savers used savings bonds
as a simple way to set money aside for the long run. But with
interest rates as low as they are right now, are savings bonds
really a viable investment? Today, we'll take a look at how
savings bonds work and whether they're a smart move.
The ultimate long-term investment?
Savings bonds have become a key part of American history, largely
because of their role in financing U.S. war efforts in both World
Wars. But for investors, savings bonds live on as a way of
building long-term savings.
You can buy two different kinds of savings bonds. Series EE
bonds pay a fixed interest rate for the first 20 years that you
own them. Series I bonds, on the other hand, pay an interest rate
that changes every six months based on moves in the
price-tracking Consumer Price Index, a measure of inflation. That
makes Series I bonds look more like the Treasury's
inflation-protected securities, which
iShares Barclays TIPS Bond
) and other
Savings bonds are pretty flexible as a savings vehicle. You
can redeem them at any time after holding them for at least one
year, but they'll keep earning interest for up to 30 years.
You'll forfeit three months of interest, however, if you turn in
your bonds during the first five years after you buy them.
Unfortunately, Series EE bonds aren't terribly competitive.
The current rate of 0.6% is less than you can get even from some
bank savings accounts, with
(Nasdaq: SLM) offering 0.8% and 1% respectively.
) banking division, which it has tried to sell off to
) GE Capital division, offers a savings account with a 0.85%
rate. And although those
rates aren't guaranteed not to fall further
, it's hard to imagine them dropping too much more from here.
But Series I bonds offer more potential. Even with no extra
interest above the rate of inflation, Series I bonds currently
pay 2.2%. And with some believing that
inflation will heat up
, Series I bonds likely offer you better value than their Series
You can get a lot of valuable information from the Treasury's new
website on savings bonds, which you can access here. Also,
check out the Fool's 60-Second Guide to Short-Term Savings to
learn more about all your savings options.
Thanks for following this series of articles over the past few
weeks. Let me take this final opportunity to encourage you to
take a look at the special website we've set up at
InvestBetterDay.com. Tomorrow, Sept. 25, we're taking a day to
celebrate the art of investing, and we encourage your
participation. Take a look at the site now and get on the path to
General Electric is a lot more than just its finance
division. Learn everything you need to know about the
the Fool's premium report on GE
. To claim your copy and your investing advantage,
Fool contributor Dan Caplinger doesn't own shares of the
companies mentioned in this article. Try any of our Foolish
newsletter services free for 30 days. We Fools may not all hold
the same opinions, but we all believe that considering a diverse
range of insights makes us better investors. The Fool's
disclosure policy likes giving you the basics.
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