Savings Idea Update

I offered EE Savings Bonds as a potential savings idea back in May. The deal just keeps getting better and better in comparison to the alternatives.

May 4, 2010
Savings Idea

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.

They now pay the same as 30-Year Treasuries, but you only have to hold them 20 years.

In sharp contrast to 30-Year Treasuries, if interest rates were to shoot up dramatically in the next few years then you could simply cash them out and walk away. Little harm done.

The only harm done would be that you'd have only earned 1.4% per year instead of the 3.5% you had hoped (you only get double if you hold the full 20 years). Further, you'd be taking a three month interest penalty hit (just 0.35%).

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.

EE/E Bonds Rates & Terms

The fixed rate is determined by adjusting the market yields of the 10-year Treasury Note by the value of components unique to savings bonds, including early redemption and tax deferral options.

Rates haven't just fallen on the 10-Year Treasury Note, they've plummeted. Unless things change between now and the end of October, I'll be a buyer.