Savings Idea

I am actually considering buying EE Savings bonds this year.

Series EE/E Savings Bond Rates

1.40%

It is not adjusted for inflation. That's all we get. It is tax deferred, not that it means much. At this point you are probably about done reading and think I've gone certifiably insane. Right?

So why am I considering them? They are sold at half their face value. In 20 years they are guaranteed to double to their face value. In other words, if you hold them the full 20 years you are guaranteed 3.526% per year.

EE/E Bonds Rates & Terms

At a minimum, the U.S. Treasury guarantees that an EE Bond's value will double after 20 years...

If inflation remains somewhat tame, then 3.5% per year might not be so bad. If we actually slide into an ongoing deflationary mess, then 3.5% might be very good.

Let's compare that to the current yields on long dated treasuries. The 10-Year yields 3.59%. The 30-Year yields 4.41%. A 20-Year would be in the 4% range. 3.5% is a bit light.

There is one major advantage here though. We can bail anytime we like (must hold one year, three-month interest penalty before 5 years) without taking a loss. If interest rates rise substantially then we won't lose money. We can simply cash them out and reinvest into something that pays better. That's the main reason I am considering them.

Here's the worst case. We earn 1.4% interest for 10 years and then inflation really takes off. We clearly want to cash them out at this point. In hindsight, we would have done much better simply buying the 10-Year Treasury that paid 3.59% and holding it for the 10 years. We missed out on the 2.19% interest rate difference. That's a lot of interest.

Here's the best case. We slide into Japan's deflationary mess and we're basically earning 3.5% per year for the next 20 years.

Here's the expected case. We earn 1.4% for a few years. We cash them out. We put the money back to work when interest rates are higher than they are now. That's not exactly my expected case, but most still seem to think it is possible.

There's no hurry on the decision. The 1.4% rate is good through October. It will depend a lot on what interest rates do between now and then. If interest rates fall, then I will probably be buying these savings bonds. If interest rates rise, then I probably won't be.

I mostly just see this as a possible alternative to holding cash, but it could actually end up being more than that. If nothing else, the 1.4% rate is higher than what my online savings account currently pays.

I prefer I-Bonds, but there's only so many we can buy in a year.

Keep in mind that this is not an investment idea and it is most certainly not investment advice. It's simply a savings idea.