Sometimes it seems that way. I invested in EE Bonds in 1992 and I’m still holding them. They doubled in value in 12 years, and are still paying 4% interest until they drop dead in 2022.
I admit I haven’t bought EE Bonds since then but when I look at them right now, I’d say they are attractive enough to at least look at as part of your super-safe allocation.
Today, they pay a fixed rate of 0.1%, and that’s the permanent fixed rate. But that’s irrelevant. Under the current EE Bond terms, your original face value automatically doubles after 20 years. That’s equals a 3.5% return, tax deferred. Not exciting, but better than the 2.3% currently paid by a 20-year Treasury, and also better – by 80 basis points! – than the 2.7% currently paid by a 30-year Treasury.
I have been wondering for awhile why the Treasury retains the 20-year doubling term. Is it out of whack with the market. Is it possible the terms of EE Bonds could change?
I’ve posted an analysis of my thinking over at SeekingAlpha.com:
Yes, EE Bonds Are A Good Investment, But If You’re Interested, Buy Them Before May 1
I think the EE bonds are a great deal to be honest. After a year you have access to the money. If you use at as an emergency fund lets say for 10 years, you’ve basically gotten 0. Hold another 10 years and you are making like 7% if held to maturity. A really good strategy in my eyes.
I think I would have an allocation to EE bonds, if I could hold them in my IRA, to hedge the risk of sustained low interest rates. I believe holding them at Treasury Direct is the only option, so that precludes tax-advantaged accounts. If Americans have any long term savings, where the 20-year-doubling EE would make sense, it is most likely in 401k’s or IRA’s. Even for education expenses where the tax break could be of value, the 20-year doubling term usually comes too late. (Who starts the college fund the year before the child is conceived?) It would make more sense for this case to get the return boost at say, year 15, even if it is not double the initial value. (1.68 times initial value at year 15 would be the same rate as a 20-year double. 15-year rates could be a bit less, maybe 1.5x?) Treasury’s product design and marketing are not in tune with customers’ needs. They are not up front with the doubling deal either: you have to drill down into the fine print.
I-bonds make more sense for the short and/or variable term of most folk’s after-tax savings. Or just roll CD’s.
What is your best thinking re. the value of insurance against unexpected positive inflation that is provided by TIPS and I-Bonds? (Expressed as an increment of % yield)