OK baselle, since you asked:
Did something recently that I never thought I would do ... I purchased a Series EE Savings Bond in my Treasury Direct account. Until recently, I've been able to find better options for cash not needed in the short term (such as CDs or High-Yielding MMAs). And although I own TIPS and used to buy Treasury Notes, it has been quite awhile since I bought a Treasury since, to be blunt, the yields suck. And Series EE Bonds always seemed to be just about the worst.
That was then. Welcome to 2010, and the age of ever-shrinking yields on bank accounts.
Last month I was looking for a place to park a bit of cash that I knew we would not need until our retirement years. (Our IRAs would have been my first choice, but they had been maxed out.)
After scouring rates on CDs and MMAs, I was getting frustrated at the low rates I was finding. Not expecting much, but figuring I had nothing to lose, I decided to poke around on the Treasury Direct site.
Found out that Series EE Bonds Savings Bonds purchased through Oct 31 are earning 1.4% interest. Not so good. For some reason I kept reading & I learned some interesting tidbits:
- A Series EE Bond earns interest for 30 years
- You have to hold the bond for at least 1 year
- After 1 year, you can cash out the bond any time
- If you cash it out before you have had it for 5 years, you will pay a penalty of 3 months' interest
- That means that if you hold the bond for 5 years, you can cash it out any time after that for no penalty
- THIS IS WHERE IT GETS INTERESTING: Your bond is guaranteed to double in value in 20 years! (I had to double-read that part to make sure my eyes weren't playing tricks on me.) Based on my calculation, that means that if I hold the bond for 20 years, the US Treasury will add enough value to the bond so that my interest earned equivalent will be 3.5%.
- TO MAKE IT EVEN MORE ATTRACTIVE: Interest income on federal taxes is deferred until the bond is redeemed. (I think state income tax is also deferred, but I'm in a no income tax state so didn't verify that.)
What this means for me is that I'm guaranteed 1.4% (tax deferred) holding the bond for 5 years, and 3.5% (tax deferred) if I hold the bond for 20 years. In 5 years, I'll see where interest rates are and decide if I want to cash the bond in and move the money or continue to hold it.
If anyone else is interested, I recommend going directly to the source and confirming all information on the US Treasury's web page: www.treasurydirect.gov
And if you have children & are saving for their college education, be sure to read about the tax advantages to using Series EE Savings Bonds to pay for their education. (If I had a newborn & knew I could earn 3.5% for 20 years, probably tax-free, I'd be buying an EE Bond!)
Archive for October, 2010
OK baselle, since you asked: