I am looking into buying Savings Bonds for my 3 year old daughter. I understand that as of December 31st bank will no longer be selling OTC so I want ed to get em before then. Will it be worth buying them or should I put the money into something else for her? What are the current interest rates for bonds? Any and all opinion's will be appreciated.
I think they're a thing of the past. They take so long to mature and tie the money up for so long, you'd be better off investing in just about anything else if you want to make anything. Unless you just want the novelty of owning one. I also think now that they're going all electronic there will be even less interest in them.
Joey, if you want the nth degree of security and minimum risk, they are reasonable, but consider that the current i bond pays inflation plus ZERO % interest. After taxes, you will actually be losing real purchasing power. The EE bonds (fixed rate) yield is so low now that the inflation risk here is terrible and they should be avoided. The fact that they take a long time to mature is irrelavent. After 5 years you may redeem anytime with no penalty. The penalty for redeeming earlier than 5 years is tiny. The 20 year EE and 30 year maturity for ibonds is one of their few advantages. If you want to redeem early, you can, if not, you don't have to. And, you are never at the mercy of the normal, marketable bond market price fluctuations. One other advantage to ibonds is that it is illegal for any municipality or state to tax them. In some instances they may be tax free if the income is used for college. Bottom line is that the Fed has arranged for minimal risk investments to pay almost nothing. I would avoid these. Instead I suggest you investigate the conservative end of corporate bonds, or better yet a balanced fund like Vanguard VWINX. About 40% value (dividend) stocks and 60% investment grade bonds. If your time horizon is 15 years, it would be reasonable to expect a return in the 5 to 15 % range. Per year, compounded.
Joey, any sort of "numismatic" value that these could have in the future is slim. The US government usually produces millions of EE and I series bonds on a yearly basis and people sit on them for years just to get a bit of interest, so they're readily available. Also, a lot of people have heard that the paper forms are being discontinued, so they're rushing to get some for nostalgia and possible value in the future. In my opinion, this is not something that will work out except as a conversation piece as being one of the last ones produced. That, coupled with the low interest rate, make me recommend putting the money in other areas.
Maybe 100 years from now the paper Treasuries will have some numismatic value as all Treasuries are now electronic only. From an investment value you should consider total return as negative, after taxes and inflation. A 5 year Treasury yields under .9% and a 10 year is under 2%. These things are not really investments, they are simply a way to PRESERVE money, not grow it. I would be quite confident that buying collectible US coins from the Mint will exceed the total return of any ibond, savings bond or Treasury bond you can buy. Joey, I manage money for old people. Many of them have in excess of 1 million dollars in a Treasury direct account. They are terrified of taking ANY risk and pay a big price. Mainly, I watch them lose thousands every year to inflation and taxes because they won't invest in anything. The whole world is irrationally afraid of risk right now and looking for safety. That tells you one thing--take SOME risk and get a better than usual reward.
Got one of each for the nostalgia factor and found it ironic that the $50 I-Bond has Helen Keller on it.
One thing worth remembering is that EE bonds are guaranteed to double in value (i.e., reach face value) in 20 years. With interest rates as low as they are today, at 0.6%, that creates some pretty weird bond values over time. For example, if you buy a $1000 face value EE bond today for $500, then in 19 years and 11 months it'll be worth $563...but one month after that it'll be worth $1000. So as long as you keep the bond for 20 years, you get something much better than the advertised 0.6% interest rate--it works out to more like 3.5%. Which is pretty good these days for a low-risk investment. (Although, as has already been pointed out, a low-risk investment may not be the best plan for a three-year-old; she's got a long enough planning horizon that a bit more risk might be acceptable.)
