Not So Bad

Jonathan Clements

I LOVE CORRESPONDING with readers, because I find out what’s on ordinary investors’ minds and hence what might make for a good article. And, occasionally, I learn something unexpected.

This week’s lesson: The potential return on EE savings bonds is much higher than I thought. If you look on, you’ll learn that the current interest rate is a meager 0.3%. After 20 years, that would give you a cumulative total return of just 6.2%. Factor in 2% inflation, and the spending power of your money would shrink by almost 29%.

But check out the fine print. On EE bonds, the Treasury guarantees that—if you don’t double your money after 20 years through the regular interest payments—it’ll make a onetime adjustment at the 20-year anniversary, so your cumulative return leaps to 100%. That’s equal to 3.5% a year.

A guaranteed 3.5% a year sounds pretty good. But remember, your annual return will be just 0.3% if you cash in before 20 years, and even lower if you sell in the first five years and pay the penalty equal to three months’ interest. Still, EE bonds aren’t quite the atrocious investment I imagined and, for super-conservative investors, could even be a reasonable choice.

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