The Basics of Savings Bonds

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Worldwide Invest Better Day 9/25/2012

The Motley Fool has been helping ordinary people become better investors for nearly two decades. This month, we're reaching out to millions of investors to help guide them in their quest toward financial knowledge and independence.

Along those lines, I've explored a range of different areas of the investing world. Historically, many savers used savings bonds as a simple way to set money aside for the long run. But with interest rates as low as they are right now, are savings bonds really a viable investment? Today, we'll take a look at how savings bonds work and whether they're a smart move.

The ultimate long-term investment?
Savings bonds have become a key part of American history, largely because of their role in financing U.S. war efforts in both World Wars. But for investors, savings bonds live on as a way of building long-term savings.

You can buy two different kinds of savings bonds. Series EE bonds pay a fixed interest rate for the first 20 years that you own them. Series I bonds, on the other hand, pay an interest rate that changes every six months based on moves in the price-tracking Consumer Price Index, a measure of inflation. That makes Series I bonds look more like the Treasury's inflation-protected securities, which iShares Barclays TIPS Bond (NYSE: TIP  ) and other ETFs offer investors.

Savings bonds are pretty flexible as a savings vehicle. You can redeem them at any time after holding them for at least one year, but they'll keep earning interest for up to 30 years. You'll forfeit three months of interest, however, if you turn in your bonds during the first five years after you buy them.

Unfortunately, Series EE bonds aren't terribly competitive. The current rate of 0.6% is less than you can get even from some bank savings accounts, with Discover Financial (NYSE: DFS  ) and Sallie Mae (Nasdaq: SLM  ) offering 0.8% and 1% respectively. MetLife's (NYSE: MET  ) banking division, which it has tried to sell off to General Electric's (NYSE: GE  ) GE Capital division, offers a savings account with a 0.85% rate. And although those rates aren't guaranteed not to fall further, it's hard to imagine them dropping too much more from here.

But Series I bonds offer more potential. Even with no extra interest above the rate of inflation, Series I bonds currently pay 2.2%. And with some believing that inflation will heat up, Series I bonds likely offer you better value than their Series EE counterparts.

Learn more
You can get a lot of valuable information from the Treasury's new website on savings bonds, which you can access here.  Also, check out the Fool's 60-Second Guide to Short-Term Savings to learn more about all your savings options.

Thanks for following this series of articles over the past few weeks. Let me take this final opportunity to encourage you to take a look at the special website we've set up at Tomorrow, Sept. 25, we're taking a day to celebrate the art of investing, and we encourage your participation. Take a look at the site now and get on the path to personal prosperity.

General Electric is a lot more than just its finance division. Learn everything you need to know about the conglomerate in the Fool's premium report on GE. To claim your copy and your investing advantage, just click here.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy likes giving you the basics.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2028606, ~/Articles/ArticleHandler.aspx, 10/24/2016 2:58:18 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,230.58 84.87 0.47%
S&P 500 2,150.92 9.76 0.46%
NASD 5,304.72 47.31 0.90%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 2:42 PM
DFS $56.29 Up +0.94 +1.70%
Discover Financial… CAPS Rating: *****
GE $28.96 Down -0.02 -0.09%
General Electric CAPS Rating: ****
MET $46.77 Up +0.39 +0.83%
MetLife CAPS Rating: *****
SLM $7.20 Up +0.06 +0.84%
SLM CAPS Rating: **