GVT Savings Bonds- Questions for the Money Wise/ Math Inclined

If you can find $50 that will double to $100 in 10 years risk free - take it! :) It's over a 7% return a year... The way you calculate is 100-50=50. 50/50=1.0 (100% return) Add 1 to that = 2.0 Raise that to the .1 power (.1 because 1 divided by 10 years = .1) = 1.0718. Subtract 1 = .0718. *100 = 7.18% annual return. But you're not goign to find CLOSE to that now. The 10 year Treasury rate is 3%. So you could buy a 10 year bond and if you hold it to maturity, your annual income with be 3%. If you want to sell before it matures though, you run the risk the price will have gone down. Interest rates in the US are expected to increase which means the price of most bonds you buy now will go down. Unfortunatley there are not many attractive investment options now that are conservative. Of course, when Treasury bonds were yielding more like 7%, inflation was expected to be higher... Interest rates have already gone up a fair amount though so buying a 10 year bond now isn't the worst idea. I've considered it. I think rates were 2% not that long ago. You can also look at bond funds that invest in corporate bonds. Yields are low there too though but higher than 3%. They are riskier though. Best is to diversify...

We have a fairly large sum of savings bonds for our daughter which were gifts when she was a baby and growing up. She is 19 now and some are still not at full maturity.

Basically, from an investment standpoint.. they are not that good. Also, the banks no longer sell them and the last we heard, there will be fees associated with cashing them in as well.

I double checked with our bank (BOA) and they will still take them in with no fees but the only place you can purchase them now is from the government. www.treasury.gov has a lot of info related to the bonds, how to purchase, calculating value, etc.

I typically run a report each year with treasury.gov with all of daughter's bonds to check the maturity, etc. We plan to give them to her next December when she turns 20 to use at her discretion. She is like us.... debt free and delayed gratification so I don't have a concern with her blowing it.

We have a standard saving account attached to our accounts that we keep any extra funds in for daughter.... ex: if I get a refund check, $$ for a gift, etc, I just put that in her savings account. This past year, when we purchased a condo for her, she took some funds from that savings account to furnish her condo.

We do have her funded for college through a 529 plan. Some ppl are against this because they don't like it being limited to further education. At our house, there is no question on further education.... we each went to college and more and it is just in our blood, therefore, daughter is very appreciative that she is not paying for her college education with loans. We strongly believe it is our parental obligation to get her out of college and started on her own debt free.

You can adjust the 529 to be as conservative or risky as you prefer. Of course, at this point, we are on a more conservative level since she has started college. In the beginning, we did take more risks. The way we have it set up now, she is fully funded through grad school.

I don't know how old your child is but we started saving when I found out I was pregnant and her account was set up when she was born with strict discipline within ourselves to fund it. You don't "have" to have a 529 account if you are concerned about it's use being educational. You can set up a traditional account with your advisor that will be more lenient with the use for your child later on as well.

The next thing ppl will say is that you should be worried about your own retirement vs your child's education and that "your kid can borrow $$ for education and you can't borrow $$ for retirement". Yes, that statement is true but a responsible person makes sure BOTH are fully funded or at least puts forth effort to make both doable.

Best wishes! They grow up WAY too fast!

There's an easy trick called "The Rule of 72" for figuring out doubling periods and interest. Simply put, the interest rate and the time it takes to double your money multiple to roughly 72. So if you know that the interest rate on something is 3%, you divide 72 by 3 to get 24, which is the number of years it would take to double your money. If you know your investment will double in 20 years, divide 72 by 20 and you get 3.6%, which would be your interest rate. If your doubling period was 10 years, your interest rate would be 7.2%.

ETA: if you don't hold the bonds for 20 years and cash them in early, you currently get an interest rate of only 0.06%. So while these are good gifts for young kids, for the rest of us, a bond mutual fund would be a better conservative investment.

http://www.treasurydirect.gov/news/pressroom/currenteebon...

I am not a math wiz, but both sets of grandparents buy my kids bonds. I know there are (at least) two kinds. One you pay 1/2 price for and they eventually reach that amount (i.e. you pay $25 for a $50 bond and it will eventually be worth $50 or more)--they are EE bonds. Another type you pay face value for and it starts accruing interest immediately--the are I bonds. I'm not sure how much interest. Also, you can't buy them at a bank anymore. You can only get them online.

Here is an example of what two of my bonds are worth:

'I' bond (paid $50 for a $50 bond).
Purchased 12/2007
worth: $62.40 (2.39% interest)

EE bond (paid $50 for a $100 bond).
Purchased 08/2007
worth: $62.12 (3.20% interest)

An 'I' bond purchased in 2010 is only earning 1.38% interest.

Looking at this info, I don't think these bonds are huge money makers. The EE bonds you pay 1/2 price for don't reach full value until 30 years.