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Redeem EE Savings Bonds?© Sound Mind Investing | November 2009
Q: In "EE" Savings Bonds: Still Worth a Look?, you recommended against investing in EE savings bonds in favor of better-paying savings vehicles. Our young son has several EE Savings bonds given him by his grandparents. Should we cash them in and invest the money elsewhere? A: It depends on two main factors: (1) the rates the bonds are paying and (2) how long ago the bonds were purchased. Savings bonds rates today are pitiful (less than 1 percent). But — picking an example here for contrast — a bond purchased three years ago is paying 3.6 percent. That's not bad compared with current rates for bank savings, money market funds, and even CDs. Any bond with a better rate than current savings rates may be worth keeping (at least for now). Any EE bond purchased in the past few months is probably paying less than 1 percent. You'd probably be better off moving that money elsewhere, despite the fact that redeeming an EE bond within the first year requires that you forfeit any interest the bond has earned (which won't be much, given the low rate). If any of the bonds are getting close to their one-year anniversary, you may want to wait until then to cash them in. (You'll still lose three months interest — that's the penalty for cashing in a bond within its first five years.) Deciding where to re-invest that money is the real challenge. Keep your eyes on SMI's Level 2 column for ideas. RELATED ARTICLES
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