Are Savings Bond rates too low?
Monday, September 27th, 2004
Categorized as: Savings Bonds and competitive investments
If I bought a $1,000 Savings Bond today for $500 and it takes 20 years for it to reach face value, thats only $25 a year interest. This doesn’t seem like much and I am sure there are other places to invest that would yield higher returns with high security. If I could find a higher yielding interest rate with security would it be more prudent to invest there?
Of course it would be more prudent if you could find such an investment, but at the $1,000 level, it’s difficult to find any alerternatives other than Series I bonds.
Series I Savings Bonds aren’t guaranteed to double in value in 20 years, but most of the money being invested in Savings Bonds today goes into I bonds. My book has the details on why I bonds are the better investment.
That said, there are investments that have historically earned more than Savings Bonds, but there are also investments that have done much worse.
Your return with most investments depends on exactly what price you buy in at and what price you sell out at.
Non-professional investors typically buy in when prices are high and sell out when prices are low and consequently lose money rather than earn the expected high return.
With Savings Bonds, you are certain you’ll get back more than you invested.
The prudent thing to do is to build a foundation of at least six-months worth of income in low-risk investments such as Savings Bonds.
After that – if you have the fortitude to buy only when markets look like they’ll never stop going down and to sell only when markets look like they’ll never stop going up – begin to diversify your holdings by adding higher-risk investments to your portfolio.