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MoneyLine by Neil Downing
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moneyline by neil downing
Savings bonds offer a safe harbor
01:00 AM EDT on Sunday, November 4, 2007
Oil prices are at record levels. Gas prices are moving up. The real-
estate market continues to stumble. And who knows how bad the mortgage
mess will get.
Amid the uncertainty, where should you invest your money? Consider
U.S. Savings Bonds.
And right now, your best bet is a particular type of savings bond
called the Series I bond. Why? Consider these points:
?The interest rate that a Series I bond earns changes every six
months, with inflation. So if the inflation rate goes up ? as it
usually does ? the interest rate on your Series I bond will go up,
too. Thus, Series I bonds help protect the purchasing power of your
dollars. In other words, they help protect you against the ravages of
inflation.
?If you buy a Series I bond from now through April, it?ll earn
interest at an annualized rate of 4.28 percent. That?s the new I-bond
rate that the U.S. Treasury set on Thursday. It?s up from the 3.74-
percent rate that the Treasury set in May.
?If you already own Series I bonds, stick with them. Some are now
earning as much as 6.71 percent, said Tom Weishaar, author of Savings
Bond Advisor.
?People need to realize there is great turmoil in the investing
markets? right now, Weishaar said in a telephone interview last week.
It?s at times like these that many investors send some of their
dollars on a flight to quality, a flight to safety. They seek refuge
from uncertainty, a place to stash cash until the storms abate. So
they look to blue-chip stocks, U.S. Treasury securities and other such
places.
?In a flight to safety, savings bonds are one of the safest
investments there is,? said Weishaar, who also runs a Web site about
savings bonds:
www.savings-bond-advisor.com
One reason is that savings bonds are backed by the full faith and
credit of the U.S. government. So you?re pretty much assured that
you?ll receive the full amount you?re owed ? principal plus interest ?
when you cash in your bond.
There are other benefits, too. For example, Series I bonds don?t pay
out interest. Instead, interest accumulates over time. When you cash
in the bond, you get back your original investment, plus all that
accumulated interest.
True, the interest is subject to federal income tax. But nearly all
bondholders get to postpone the day of reckoning ? you don?t have to
pay the tax until you cash in the bond. As a result, you can defer the
tax bill ? for up to 30 years if you like. In a sense, the Series I
bond is a tax shelter for the little guy.
In addition, the interest you receive escapes state and local income
tax altogether.
Series I bonds are widely available at most banks and credit unions.
Another way to buy them is online, directly from the Treasury, at this
Web site:
www.treasurydirect.gov
You can invest as little as $25 if you buy online, or as little as $50
if you buy through a bank or credit union. Thus, Series I bonds can be
attractive no matter the size of your pocketbook.
So Series I bonds can be a pretty good deal, something to think about
the next time you?re trying to figure out where to stash some of your
money.
A few other points to keep in mind:
?To discourage people from frequently cashing in and out of savings
bonds, the government has a number of rules. For example, you
generally must hold a bond for at least 12 months before you can cash
it in. Also, if you cash it in within the first five years you own it,
you?ll forfeit three months? interest.
?Remember that the interest rate on Series I bonds has two components.
One is a variable rate, which changes every six months with inflation;
the other is a fixed rate of interest, which stays with your bond for
its entire 30-year interest-earning life.
The current, annualized inflation rate on Series I bonds is 3.06
percent, up from the previous rate of 2.42 percent set in May. The
current fixed rate is 1.2 percent, down from the previous rate of 1.3
percent set in May.
?All Series I bonds issued before November 2001 are earning, or will
soon earn, interest at an annualized rate of at least 6 percent,
Weishaar said. Those issued May 2000 through October 2000 are earning,
or will soon earn, interest at an annualized rate of 6.71 percent, he
said.
?New Series EE bonds aren?t as appealing as new Series I bonds, said
Daniel J. Pederson, president of The Savings Bond Informer of Detroit,
a savings bond consulting service, and author of Savings Bonds: When
to Hold, When to Fold, and Everything In-Between.
The government on Thursday said that new Series EE bonds will earn
interest at an annualized fixed rate of 3 percent. That?s down from
the previous rate of 3.4 percent set in May.
As a result, the I-bond ?is certainly the better buy,? Pederson said
in a telephone interview last week. ?The caveat here is, if inflation
going forward is equal to or higher than what we?ve been experiencing,
then the I-bond would be the better buy.?
?When shopping for safe places to stash your cash, don?t look just to
savings bonds. Also consider such items as certificates of deposit and
money market accounts.
At one point last week, the average yield on one-year CDs was 3.61
percent, according to BankRate.com, a publisher of interest rates. On
five-year CDs, the average yield was 3.92 percent. Money market
accounts were yielding about 3.54 percent.
Don?t forget that a number of local banks and credit unions often have
yields that exceed those averages, so it can pay to shop around.
?There are lots of other details about savings bonds, too many to list
here. For more information, call the bond program toll-free at
1-866-388-1776, or write: Bureau of the Public Debt, P.O. Box 7012,
Parkersburg, W.Va. 26106. The Treasury?s bond program Web site isn?t
as user-friendly as it used to be; savings bond information isn?t all
in one easily accessible place. Still, the Web site is worth a look:
www.treasurydirect.gov
TODAY?S TIP: Planning to claim the tuition and fees deduction on your
federal income-tax return early next year? You?ll need a new form to
do it. In general, the deduction is for up to $4,000 of college
tuition and fees. Until now, you claimed the deduction on the cover of
your return. That?ll still be true for the filing season which starts
in January. But you?ll also have to fill out and attach new Form 8917.
Why? You can?t claim the tuition-and-fees deduction and an education
credit in the same year for the same student. The new form will
provide the Internal Revenue Service with additional documentation,
and will help ensure that taxpayers aren?t claiming both tax breaks
for the same student in the same year, IRS spokeswoman Peggy Riley
said.
Note to readers: MoneyLine?s usual question-and-answer format returns
tomorrow.
Questions about your money matters? Call us at 1-401-277-7484 and
leave a message, or e-mail:
moneyline@projo.com
Please include your name, home town and home phone in case we need to
reach you. Sorry, no personal replies; as many questions and issues as
possible will appear here.
http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm
projoCars Home | Buy | Sell | Research | News | Place an ad
Find Jobs | News | Advice/Tools | How to Search
Shop Newspaper Ads
Cardi's Furniture
Benny's
Search Legal Notices
Comments | Recommended
moneyline by neil downing
Savings bonds offer a safe harbor
01:00 AM EDT on Sunday, November 4, 2007
Oil prices are at record levels. Gas prices are moving up. The real-
estate market continues to stumble. And who knows how bad the mortgage
mess will get.
Amid the uncertainty, where should you invest your money? Consider
U.S. Savings Bonds.
And right now, your best bet is a particular type of savings bond
called the Series I bond. Why? Consider these points:
?The interest rate that a Series I bond earns changes every six
months, with inflation. So if the inflation rate goes up ? as it
usually does ? the interest rate on your Series I bond will go up,
too. Thus, Series I bonds help protect the purchasing power of your
dollars. In other words, they help protect you against the ravages of
inflation.
?If you buy a Series I bond from now through April, it?ll earn
interest at an annualized rate of 4.28 percent. That?s the new I-bond
rate that the U.S. Treasury set on Thursday. It?s up from the 3.74-
percent rate that the Treasury set in May.
?If you already own Series I bonds, stick with them. Some are now
earning as much as 6.71 percent, said Tom Weishaar, author of Savings
Bond Advisor.
?People need to realize there is great turmoil in the investing
markets? right now, Weishaar said in a telephone interview last week.
It?s at times like these that many investors send some of their
dollars on a flight to quality, a flight to safety. They seek refuge
from uncertainty, a place to stash cash until the storms abate. So
they look to blue-chip stocks, U.S. Treasury securities and other such
places.
?In a flight to safety, savings bonds are one of the safest
investments there is,? said Weishaar, who also runs a Web site about
savings bonds:
www.savings-bond-advisor.com
One reason is that savings bonds are backed by the full faith and
credit of the U.S. government. So you?re pretty much assured that
you?ll receive the full amount you?re owed ? principal plus interest ?
when you cash in your bond.
There are other benefits, too. For example, Series I bonds don?t pay
out interest. Instead, interest accumulates over time. When you cash
in the bond, you get back your original investment, plus all that
accumulated interest.
True, the interest is subject to federal income tax. But nearly all
bondholders get to postpone the day of reckoning ? you don?t have to
pay the tax until you cash in the bond. As a result, you can defer the
tax bill ? for up to 30 years if you like. In a sense, the Series I
bond is a tax shelter for the little guy.
In addition, the interest you receive escapes state and local income
tax altogether.
Series I bonds are widely available at most banks and credit unions.
Another way to buy them is online, directly from the Treasury, at this
Web site:
www.treasurydirect.gov
You can invest as little as $25 if you buy online, or as little as $50
if you buy through a bank or credit union. Thus, Series I bonds can be
attractive no matter the size of your pocketbook.
So Series I bonds can be a pretty good deal, something to think about
the next time you?re trying to figure out where to stash some of your
money.
A few other points to keep in mind:
?To discourage people from frequently cashing in and out of savings
bonds, the government has a number of rules. For example, you
generally must hold a bond for at least 12 months before you can cash
it in. Also, if you cash it in within the first five years you own it,
you?ll forfeit three months? interest.
?Remember that the interest rate on Series I bonds has two components.
One is a variable rate, which changes every six months with inflation;
the other is a fixed rate of interest, which stays with your bond for
its entire 30-year interest-earning life.
The current, annualized inflation rate on Series I bonds is 3.06
percent, up from the previous rate of 2.42 percent set in May. The
current fixed rate is 1.2 percent, down from the previous rate of 1.3
percent set in May.
?All Series I bonds issued before November 2001 are earning, or will
soon earn, interest at an annualized rate of at least 6 percent,
Weishaar said. Those issued May 2000 through October 2000 are earning,
or will soon earn, interest at an annualized rate of 6.71 percent, he
said.
?New Series EE bonds aren?t as appealing as new Series I bonds, said
Daniel J. Pederson, president of The Savings Bond Informer of Detroit,
a savings bond consulting service, and author of Savings Bonds: When
to Hold, When to Fold, and Everything In-Between.
The government on Thursday said that new Series EE bonds will earn
interest at an annualized fixed rate of 3 percent. That?s down from
the previous rate of 3.4 percent set in May.
As a result, the I-bond ?is certainly the better buy,? Pederson said
in a telephone interview last week. ?The caveat here is, if inflation
going forward is equal to or higher than what we?ve been experiencing,
then the I-bond would be the better buy.?
?When shopping for safe places to stash your cash, don?t look just to
savings bonds. Also consider such items as certificates of deposit and
money market accounts.
At one point last week, the average yield on one-year CDs was 3.61
percent, according to BankRate.com, a publisher of interest rates. On
five-year CDs, the average yield was 3.92 percent. Money market
accounts were yielding about 3.54 percent.
Don?t forget that a number of local banks and credit unions often have
yields that exceed those averages, so it can pay to shop around.
?There are lots of other details about savings bonds, too many to list
here. For more information, call the bond program toll-free at
1-866-388-1776, or write: Bureau of the Public Debt, P.O. Box 7012,
Parkersburg, W.Va. 26106. The Treasury?s bond program Web site isn?t
as user-friendly as it used to be; savings bond information isn?t all
in one easily accessible place. Still, the Web site is worth a look:
www.treasurydirect.gov
TODAY?S TIP: Planning to claim the tuition and fees deduction on your
federal income-tax return early next year? You?ll need a new form to
do it. In general, the deduction is for up to $4,000 of college
tuition and fees. Until now, you claimed the deduction on the cover of
your return. That?ll still be true for the filing season which starts
in January. But you?ll also have to fill out and attach new Form 8917.
Why? You can?t claim the tuition-and-fees deduction and an education
credit in the same year for the same student. The new form will
provide the Internal Revenue Service with additional documentation,
and will help ensure that taxpayers aren?t claiming both tax breaks
for the same student in the same year, IRS spokeswoman Peggy Riley
said.
Note to readers: MoneyLine?s usual question-and-answer format returns
tomorrow.
Questions about your money matters? Call us at 1-401-277-7484 and
leave a message, or e-mail:
moneyline@projo.com
Please include your name, home town and home phone in case we need to
reach you. Sorry, no personal replies; as many questions and issues as
possible will appear here.
http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm