First Person: Savings Bonds for Retirement?

As a financial advisor, I help individuals plan for retirement, among other things. I get a lot of questions about savings bonds. Years ago, federal savings bonds were the way to go if you were looking to save money and plan for your future. Today, these instruments are not a very wise investment; the return is less than most other savings vehicles. I currently am holding two savings bonds that were purchased for $25 in 2000 and are currently only worth about $30. If this money had been invested in the stock market I could have made hundreds of dollars in that time. For example, I purchased several thousands shares of Ford Motor Company stock in 2008 for $0.50 a share, and just sold it a couple months ago for $18.53 per share. While not all stock rises that high that quickly, almost any good stock is a better option than a savings bond.

What Is a Savings Bond?

A Savings Bond is issued by the United States Department of the Treasury. There are currently three types of U.S. Savings Bonds - the Series I Bond, the Series EE Bond, and the Patriot Bond. You can purchase Savings Bonds at banks, credit unions, and even online directly from the U.S. Treasury Department. Savings Bonds are backed by the federal government, so they are a safe investment as the principal and interest earned can never be lost. Savings bonds are also free from income tax, and you can invest smaller amounts in bonds, so these can be a good vehicle for children or those who are new to investing.

What Is the Rate of Return?

Series EE Bonds currently are earning a fixed rate of 0.60% through April 30, 2011. Series I Bonds are currently earning at the fixed rate of 0.74% through April 30, 2011. A Patriot Bond is identical to the EE Bond and earns at the same rate of return, but MUST be purchased at a financial institution, in order to bear the "Patriot Bond" inscription.

What Are Some Better Options?

A Certificate of Deposit is one viable option. CDs can be purchased with a maturity date of anywhere from thirty days to five years in the future. Many institutions guarantee the interest rate on a CD. Stocks and mutual funds also offer higher returns than savings bonds. A regular savings account offers a slightly higher rate of return.

As always, if you have any questions or would like more information about this topic or any other retirement-oriented topic, seek the advice of a qualified, licensed financial advisor.

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