Bond. SAVINGS Bond.
No, this blog isn’t about how Secret Service Agent James Bond fights the global criminal organization Sprectre. Rather, this week's blog is about something far less action packed but far more important to your financial investments – savings bonds.
Shortly after I was born, my grandfather purchased for me a small Series E bond. Knowing little more about bonds than that they mature over time, I kept the bond in a safe place for many years. So as I “matured” over the years, so did my bond. Or so I thought. I assumed we were both maturing at an equally steady rate. After meeting with my coach Melanie, and Summit Credit Union Financial Advisor Jody Brown, I’ve now learned that as I continue to “mature”, my Series E bond is not.
Over the years since Ashley was born, my father has purchased Series EE and I savings bonds for Ashley. As with the bond that I received from my grandfather, I have held onto these bonds for Ashley for a long time, assuming that they were continuing to mature with no finite end date. I didn’t really have a good grasp over what the difference in the bonds were and what that meant for their maturity and interest rates. I’ve done some research, and I’ve learned that the Series E and EE bonds issued after May of 2005 have a whopping 0.10% fixed interest rate. Those issued between May 1997 and April 2005 earn a variable interest rate. Another interesting fact I learned is that the paper bonds were sold for half of their face value. Half!
I was pleased to learn that the Series I bonds were performing much better. Those bonds currently earn 1.96% interest rate, and the paper bonds were purchased at their face value.
Now I have to decide what to do with the savings bonds. Do I keep the Series E bond that has reached its maturity date? Do I reinvest it? What about the Series EE bonds and the Series I bonds with the higher interest rate? Do I keep them as bonds? Re-invest them? If I reinvest, what risks am I willing to take in the re-investments with something that might perform better than bonds in the short run but carry a much higher risk?
So now we come to this week’s financial fun fact: when investing, you need to consider both timeline and risk tolerance. How soon do you need the money (i.e. are you saving for your new born child’s college education or your 15 year old's college education?) and how comfortable are you with investing in high risk options (e.g. bonds vs stocks)?
Come back later in the Project Money program to find out what I decide to do with my bonds. What would you do? In the meantime, if you are interested in more information on savings bonds, you can find it at https://www.treasurydirect.gov/indiv/indiv.htm