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Friday, January 9, 2009

Consider the lowly I Bond

US Savings Bonds have consistently gotten a bad rap. Over the years I purchased small quantities of bonds as the cornerstone of my emergency fund and for tax-free educational savings. Sure, most of the EE bonds I purchased in the mid-90s have earned 4%, which lag behind inflation. But, the I Bonds that I purchased in 2000 are earning more than 8% now! I want to know where anyone can get a guaranteed 8% rate right now on a short term investment?!

Now, to be accurate, the current rate, according to the US Treasury web site is 5.64% and bonds must be held for a minimum of 6 month. So how does that compare to 6 month CDs with purchase prices of less than $50,000? According to Bankrate.com this week that rate was 2.07% and remember that it taxable!

So, if you an individual investor looking for some safe investment options, consider the lowly US Treasury I Bond.

2 comments:

Hugh H said...

Bonds that require you to lock in your money for six months or more may not be the best idea for an emergency fund. I understand wanting a larger return, but what good is a few extra percentage points if you need the money in say 4 months? Many people would then have to go into debt because their emergency fund is inaccessible.

Lee said...

Great point, and you are absolutely right. I'd recommend this to someone who already was well on their way to building their emergency fund over a longer time period. Mine took a decade to build.