U.S. Treasury savings bonds have turned into one of the worst investments you can make.
Q: You used to buy bonds at half the face value and then they would earn interest for decades. What’s changed?
A: You still do buy what are known as Treasury EE Savings Bonds at half price. Once they matured to face value, the government would keep paying interest until 30 years, with the interest rate varying according to inflation. But now, the bonds — which when we were kids matured in 7 years — now take 18 years to mature, and Treasury has changed the terms to a fixed rate for the rest of the time.
And get this: For bonds purchased after May 1 of this year and for the rest of 2009, you only get a fixed rate of seven tenths of one percent. Definitely a lousy investment.
Q: What about the bonds you buy at face value?
A: Those are the I series bonds, or indexed to inflation. You pay $100 for a $100 bond, and the government pays a a fixed rate of interest plus a variable rate of interest for the next 30 years, adjusting the variable rate twice a year. On I series bonds purchased for the rest of this year, the current fixed interest rate is a big fat zero point one percent. One tenth of one percent. And the variable interest rate for the next six months? Exactly zero percent.
And, by the way, Treasury T-bills, another type of instrument similar to a CD, are paying exactly zero percent. That means you buy a T-bill, and six months later the government gives you back the same amount of money. That’s not any better than keeping your money in a coffee can,
Q: Are there any decent CDs out there?
A: According to WFED’s registered benefits advisor, Ed Zurndorfer, you can find decent CD rates by going to www.bankrate.com. I checked it out yesterday and found one-year certificates of deposit paying more than 2.5 percent.