(This post is continued from Part 1)
Okay, so we went over I-Bonds for a little bit, now let?s see what EE Bonds have to offer. Again, EE-Bonds share many characteristics with I-Bonds, which were outlined in my previous post. However, EE-Bonds are sold at half of face value ? a ?$50 EE Bond? costs $25. Whenever a contest offers you a ?$50 Savings Bond?, odds are it?s an EE-Bond.
The rate that an EE-Bond pays is calculated as 90% of the average yields on 5-year Treasury securities for the preceding six months, and it is updated twice a year at the same time as I-Bonds (see historical rates here). One interesting wrinkle is that EE bonds issued after 6/2003 are also guaranteed to double after 20 years, no matter what the interest rates are (that’s about 3.52% compounded annually). For example, that $50 contest bond that cost $25 will reach the value on the front ($50) in 20 years no matter what. I-Bonds have no such guarantee.
Now the question is, should anyone buy these? In my opinion, people in high local and state tax areas like California and New York should definitely look into them, especially if you are looking into something safe and liquid after about a year.
Personally, I am going to wait until May 1st to see what the new interest rates are. I-Bonds bought until then pay 3.67% for the next six months, while EE-Bonds are paying 3.25%. EE Bond rates are mostly likely to rise, due to the rising 5-year Treasury rates. I’m not sure about I-Bonds, I don’t think they are going to rise much in May but who know about the future? (I do think the gov’t is going to have to inflate us out of this national debt somehow). If the fixed portion of I-Bonds remain at 1.0%, I won’t be buying them for sure.
Right now, banks like Emigrant Direct are also offering competitive rates as well for people’s money, although the interest on that is fully taxed at the state and local levels. Hmm, tough decision.
By Jonathan Ping | Savings Bonds | 3/20/05, 10:09am