A recent report by ABC News confirms what I have suspected for some time: U.S. Savings Bonds just aren’t what they used to be.
The report says federal changes will result in Series EE savings bonds earning a “miserly” interest rate of 1.40 percent. The Treasury has also reduced the amount of savings bonds you can purchase and, according to the story, seems to be encouraging investors to purchase other types of bonds.
“Taken together, the miserly interest rates offered on savings bonds, smaller
savings bond purchases and easier access to other Treasury securities, are
likely to diminish the attractiveness of savings bonds.
Savings bonds, however, offer one major advantage you can’t get from other Treasury securities — tax-free interest is available on savings bonds if they are used to pay for college expenses by an adult meeting income limits set by the IRS.
Also, the tax on savings bond interest is deferred, meaning you do not have to pay it until you cash in your savings bond. Even with these benefits, it’s tough to
recommend the trusty savings bond.” — ABC News
My grandfather always bought his grandkids a savings bond for every birthday and Christmas. Ten years ago, I had enough money to put a dent in my college education. I had a few savings bonds left after college. (My first emergency fund!) My grandfather has since passed on, and one day when I was thinking about what to do with the bonds that would help me honor his memory, I started to think about what kind of interest they were earning. I realized that the bonds were barely earning any interest at all. I could have made more interest by putting the money in my checking account! (You can find out how much yours are worth by downloading the calculator here).
I decided that the best way to honor my Grandfather would be to use the money for my sons’ college education. I cashed in the Savings Bonds last fall (about $1,500 worth) and divided it into three 529 plans for my sons. They’ll earn more money there, which is something my frugal grandfather would appreciate it.
Ultimately, my goal is to fund our retiremement and then worry about the kids’ college fund. But it still feels good knowing that our boys will at least be able to buy a couple of textbooks in 2025.