U.S. Savings Bond rates change November 3: Are they really a 'safe' investment?
byOct 24th 2008 3:00PM
Compare it to the Dow Jones year-to-date return, which is down almost a third, and you'll find that your U.S. Savings Bond, whether it's a Series EE or I, is starting to look like not only a safe investment, but a far more profitable one as well.
Turn back the clock five years and you'll find an even bigger surprise, that stodgy war-time inspired bond has netted you almost $20 for every $100 you've put in. Push that up against the five-year return on the Dow, down more than 9%, and that Savings Bond has gone from the B-list of noteworthy money-makers to having its own star on the Wall Street Walk of Fame.
But why doesn't the lonely Savings Bond see headlines? Why isn't everyone and their mother raving about its earnings? Because it's not a sexy investment. There's no risk in putting your money into the hands of "the full faith and backing" of the U.S. Government. Or is there?
This past May noted a landmark in the Savings Bond world: the Bureau of Public Debt set a 0% fixed rate and 4.84% variable rate for Series I Savings Bonds issued between May 1 and November 1, 2008. This means that for the first time ever, Series I Savings Bonds issued for that 6-month period have the potential to hit rock bottom earning 0%! That is, of course, only if the the variable portion of the I Bond's composite rate, based on the country's inflation, reaches zero first.
Will the U.S. Department of the Treasury maintain its stance on this 0% fixed rate nonsense in the next announcement on November 3? We'll have to wait and see.
Since the inception of these new interest rates in May 2008, the Series EE bond has outsold the Series I bond in face value by more than half. This just goes to prove that Savings Bond investors aren't going to put up with the potential to earn nothing for 6 months at a time. While they are guaranteed to never lose their value, earning 0% would be considered a loss by Savings Bond owners.
Check back on November 3 with the rest of the Savings Bond world on the edge of its seat and we'll learn together if the new super-star of safe investing continues its fantastic trend.Jack Quinn is a personal finance writer and editor for SavingsBonds.com. His first experience with savings bonds was having his picture taken while sitting on a bomb in Times Square as a child with Hollywood celebrities, promoting the Savings Bond program. He has been a guest host on financial radio and television shows and a featured writer in various personal finance magazines and newspapers. Jack has helped Savings Bond owners better understand their investments for more than 15 years.