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Question:


Would you consider purchasing U.S. savings bonds to be a smart financial move, more so than, say, placing money in a CD? Where would I go to purchase a U.S. savings bond?
-QuentinO


Answer:


Let’s get the second question out of the way first. There’s a government website,
http://www.treasurydirect.gov/indiv/indiv.htm, that allows investors to set up an account to buy bonds directly or through regular payroll deductions. The site is pretty helpful, explaining procedures step by step and allowing users to go from one section to another in a logical, straightforward way.

As for whether buying savings bonds is a sound financial move, that’s a hard case to make these days. If you hold them for less than 20 years, Series EE bonds yield a pathetic 0.6 percent a year. Worse, if you cash them in before five years, there is a penalty of three months’ interest. If you hold the bonds for at least 20 years, the government guarantees that you will double your money, but that’s not as good a deal as it may seem at first.
 
Doubling your money over 20 years works out to an annual interest rate of just under 3.5 percent. If you were to buy a conventional Treasury bond with a 20-year maturity, the yield would be a bit more than 4 percent and, of course, you could sell it at any time and not have to hang on until the bitter end to get that yield. If you own an EE savings bond and need to sell it after 19 years for some reason, all you’ll get is that 0.6 percent rate year in and year out.
-Conrad de Aenlle



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