Comments on: Savings Bond Alert #016 http://www.savings-bond-advisor.com/savings-bond-alert-016/ Fri, 29 Aug 2008 20:32:46 +0000 http://wordpress.org/?v=2.0.4 by: Tom Adams http://www.savings-bond-advisor.com/savings-bond-alert-016/#comment-62 Sat, 05 Nov 2005 22:29:00 +0000 http://www.savings-bond-advisor.com/savings-bond-alert-016/#comment-62 There's no easy answer to this question.<BR/><BR/>With the Savings Bonds, you know you'll always get 90% of the 5-year Treasury security rate. <BR/><BR/>With the bank products you'll get whatever the bank feels like giving you. The rates you are quoting are money-losing rates for the bank; they have them that high to attract name recognition and new customers. For example, Bankrate.com says the average rate on 1-year CDs today is 3.8% - 1 percentage point lower than the CD rate you're quoting.<BR/><BR/>It's unlikely that these banks will always offer rates so high relative to the general level of interest rates.<BR/><BR/>There are also tax differences (federal income tax deferred with Savings Bonds and no state or local income tax) between the products and the three-month interest penalty for early withdrawal on the Savings Bonds to consider.<BR/><BR/>Moreover, it sounds like you're interested in short-term accounts. Savings Bonds really need to be held five years to be as good as they can be. There's no easy answer to this question.

With the Savings Bonds, you know you'll always get 90% of the 5-year Treasury security rate.

With the bank products you'll get whatever the bank feels like giving you. The rates you are quoting are money-losing rates for the bank; they have them that high to attract name recognition and new customers. For example, Bankrate.com says the average rate on 1-year CDs today is 3.8% - 1 percentage point lower than the CD rate you're quoting.

It's unlikely that these banks will always offer rates so high relative to the general level of interest rates.

There are also tax differences (federal income tax deferred with Savings Bonds and no state or local income tax) between the products and the three-month interest penalty for early withdrawal on the Savings Bonds to consider.

Moreover, it sounds like you're interested in short-term accounts. Savings Bonds really need to be held five years to be as good as they can be.

]]> by: Anonymous http://www.savings-bond-advisor.com/savings-bond-alert-016/#comment-61 Sat, 05 Nov 2005 14:50:00 +0000 http://www.savings-bond-advisor.com/savings-bond-alert-016/#comment-61 Does it make sense to keep EE bonds that were bought in 2003 that pays 3.61% and still adjusts every 6 months when you can get an emigrant savings account with no minimum paying 4%, or a 1yr cd and get about 4.8%? Does it make sense to keep EE bonds that were bought in 2003 that pays 3.61% and still adjusts every 6 months when you can get an emigrant savings account with no minimum paying 4%, or a 1yr cd and get about 4.8%?

]]> by: Anonymous http://www.savings-bond-advisor.com/savings-bond-alert-016/#comment-60 Wed, 02 Nov 2005 19:42:00 +0000 http://www.savings-bond-advisor.com/savings-bond-alert-016/#comment-60 I truly enjoy getting this bond info. I buy I Bonds and look forward to the pearls of wisdom you pass along as well as investors who write in. I truly enjoy getting this bond info. I buy I Bonds and look forward to the pearls of wisdom you pass along as well as investors who write in.

]]> by: Mario http://www.savings-bond-advisor.com/savings-bond-alert-016/#comment-59 Wed, 02 Nov 2005 03:26:00 +0000 http://www.savings-bond-advisor.com/savings-bond-alert-016/#comment-59 Tom:<BR/><BR/>Well, I for one think you have done an excellent analysis for the rate prediction. In an ideal world, certainly the fixed rate should have gone up (and for that matter also the EE rate). Unfortunately we're dealing with a less than ideal response to a market situation in an effort of the government to further its unknown agenda in this matter. Nonetheless, thank you for the analysis, I'm sure we'll learn a lot on future May 1st's and November 1st's about the Treasury... Tom:

Well, I for one think you have done an excellent analysis for the rate prediction. In an ideal world, certainly the fixed rate should have gone up (and for that matter also the EE rate). Unfortunately we're dealing with a less than ideal response to a market situation in an effort of the government to further its unknown agenda in this matter. Nonetheless, thank you for the analysis, I'm sure we'll learn a lot on future May 1st's and November 1st's about the Treasury…

]]> by: Tom Adams http://www.savings-bond-advisor.com/savings-bond-alert-016/#comment-58 Wed, 02 Nov 2005 01:22:00 +0000 http://www.savings-bond-advisor.com/savings-bond-alert-016/#comment-58 Ken -<BR/><BR/>Agreed. The Treasury has shown it's willing to give big investors higher rates and small investors lower rates.<BR/><BR/>On the other hand, we hear this same music in relation to taxes and health care, so I guess I was a bit naive to think they'd play a different tune for investors. Ken -

Agreed. The Treasury has shown it's willing to give big investors higher rates and small investors lower rates.

On the other hand, we hear this same music in relation to taxes and health care, so I guess I was a bit naive to think they'd play a different tune for investors.

]]> by: Banking Guy http://www.savings-bond-advisor.com/savings-bond-alert-016/#comment-57 Wed, 02 Nov 2005 00:36:00 +0000 http://www.savings-bond-advisor.com/savings-bond-alert-016/#comment-57 FYI, the history of I Bond rates is available <A HREF="http://www.publicdebt.treas.gov/sav/sbirate2.htm" REL="nofollow">here</A>.<BR/><BR/>Back in May 2002, the inflation component was only 0.56%. They chose to keep the fixed rate constant at 2% even though it resulted in the very low combined rate of around 2.58%. The Treasury didn't see the need to increase the fixed rate to make it comparable to similar investments. But when inflation is in our favor, they lower the fixed rate.<BR/><BR/>It's very disappointing. Looks like it's going to be a long time before we see fixed rates like they were back in 2000....<BR/><BR/>-Ken FYI, the history of I Bond rates is available here.

Back in May 2002, the inflation component was only 0.56%. They chose to keep the fixed rate constant at 2% even though it resulted in the very low combined rate of around 2.58%. The Treasury didn't see the need to increase the fixed rate to make it comparable to similar investments. But when inflation is in our favor, they lower the fixed rate.

It's very disappointing. Looks like it's going to be a long time before we see fixed rates like they were back in 2000….

-Ken

]]>