Why would anyone buy savings bonds?

[lukeh]

My 6 year old son keeps getting these savings bonds as gifts. Why does anyone think this is a good gift to give? His EE bonds all pay a 30 year fixed rate of between .7% and 1.2%. How on earth can someone think giving a 30 year bond paying a fixed rate of .7% is a smart move? Just give him the cash and I could put it in a lousy CD and get triple that. He also has a few I bonds that are paying better than the EE bonds but because they are tied to inflation the rate for the past 6 months was actually ZERO percent. Yes, my son was given a bond that had a current rate of zero.

The other thing that kills me is how the taxes work. Right now the taxes on these bonds are deferred until the bond matures. That sucks because as a child he'd pay no taxes on his interest but will instead be hit with all the taxes at once when he's 35 and in a real tax bracket.

These things suck all the way around. The only reason for a gift like this that I can think of is that the person buying them has no clue what they pay or how they work. I cashed them all in early and put them in a mutual fund inside a college account. I think over the next 13 years the market can average better than .7%.

[TechnoViking]

I used to get them as a kid from a family friend who worked in a bank. At first it seemed really cool. They're official-looking and have large dollar amounts on them.

Then you find out how they work, and that they are really worth next to nothing in present value. Very disappointing, but a lesson in economics, I suppose.

But I actually think they push kids away from saving. 30 years may as well be 30,000 years when you are 10 years old. What's the point?

As an adult, yea, pretty lame "investment" given the anemic rate of return and predictable inflation. May as well buy spoons.

I think the sole purpose of those bonds is for kid gifts, now that I think about it

[Looking_for_911]

I think the sole purpose of those bonds is for kid gifts, now that I think about it [/QUOTE]


You're absolutely correct. These bonds are meant to tuck away money Granny doesn't want to see run through a soft drink machine or blown at an arcade.
Of course, what does that say about what the bond givers think of the kid's parents and their money skills?

[cgarr]

You had to buy them many years ago, I started buying one $100 bond a week, payroll deducted ($50) back in 1976 and stopped in 1995, they max out in 30 years and most are at about $160 the last I checked online, I think? have not checked in a year or two...maybe not the best investment but actually I had forgot all about them until just a few years ago. I think they were around 6.5%?

[m21sniper]

For a kid a savings bond is a great investment, and a lesson in responsibility, economics, and savings...IMO.

[lukeh]

Originally Posted by m21sniper

For a kid a savings bond is a great investment, and a lesson in responsibility, economics, and savings...IMO.

You mean because it teaches kids how not to invest money? Putting money at .7%for 30 years is foolish. Deferring taxes until you're in a higher bracket is foolish. His mutual fund he can follow day to day on-line or in the paper. He will see and learn about the ups and downs of the market. That will teach him about economics and making sure his fund is a good one will teach him about responsibility. His bonds would have sat in a safety deposit box for 30 years so I don't see that teaching him much of anything...other than how to get a bad rate of return and pay more taxes.

[legion]

The old Series E bonds actually paid decent rates. The newere Series EE bonds suck.

When I worked at a bank in high school, I cashed in all of my savings bonds and opened a CD.

[dd74]

Bonds have sort of lost their meaning, which to me always was "save" and "invest in government."

[Christien]

Originally Posted by dd74

"invest in government."

That's how I always understood them. Never had one, myself. The gov't forces me to "invest" in them enough as it is.

Maybe some people see them as a gift that's both patriotic and economically responsible? (though it's not, really, as has been demonstrated)

[dd74]

Bond folks would be better off giving kids gold coin sets. At least there is value in precious metals.

[TechnoViking]

Originally Posted by dd74

Bond folks would be better off giving kids gold coin sets. At least there is value in precious metals.

+1

I still have the 1/4 oz "panda" coin I got in 1984.

And I think teaching a kid to live within his means (preferably through example) is the best financial lesson we can teach.

Next comes investing at a rate that outpaces inflation...

[m21sniper]

Originally Posted by lukeh

You mean because it teaches kids how not to invest money? Putting money at .7%for 30 years is foolish. Deferring taxes until you're in a higher bracket is foolish. His mutual fund he can follow day to day on-line or in the paper. He will see and learn about the ups and downs of the market. That will teach him about economics and making sure his fund is a good one will teach him about responsibility. His bonds would have sat in a safety deposit box for 30 years so I don't see that teaching him much of anything...other than how to get a bad rate of return and pay more taxes.

It gives you the chance to say, "Hey junior, if you put this away, someday it will be worth...."

It is a seguay to have a financial conversation with your child. IMO, it is a very good tool for that purpose, and while the investment is not first rate, it will never depreciate (which in and of itself is a very worthwhile reason to look into bonds IMO), and it does earn some modicum of interest.

[m21sniper]

Originally Posted by dd74

Bond folks would be better off giving kids gold coin sets. At least there is value in precious metals.

Can't agree here. My dad gave me his coin collection when i was a kid. I spent almost all of it buying candy....

[Looking_for_911]

Originally Posted by m21sniper

Can't agree here. My dad gave me his coin collection when i was a kid. I spent almost all of it buying candy....

BTDT!
I vividly remember some shiesters coming through town many years ago, setting up shop, and advertising how they were gonna make us rich if we cashed in those musty, old coins we had "Laying around in a drawer." Kind of like the gold buyers are doing today.
My dumb butt hauled in a coffee can full of V-nickels and silver dollars and sold them so I'd have money to buy tickets to the Alabama vs Kentucky game. Bear Bryant's 300th win if I remember correctly. I had enough to pay the scalper for the tix for me and buddy, buy concessions and even fill up the gas tank on the car.
And what do I have now from that experience, bitter memories!
I've kicked myself many a time for selling off those coins!

[Rick Lee]

I got some savings bonds from my great grandmother in the mid-70's. When they matured, my folks insisted I use the money to invest in something else of value. I chose Franklin Half Dollars and have a nice set of them in brilliant uncirculated. No idea what they're worth now, but I'm sure it's more than the $175 I started out with and they sure look awesome. When I traded baseball cards and coins with some friends, my mom got irate that I spent $5 on a Mickey Mantle '58 All Star card. I still have it and it's worth plenty now.

[TechnoViking]

You know you can take those savings bonds into the bank and get whatever their present value is any time you want. (That's what I did to buy concert tickets in high school.)

So having a piece of paper that says year "20xx" on it does not force the kid to save it, any more than having a coin collection or other instrument, FYI.

[Looking_for_911]

Originally Posted by Martin Smith

You know you can take those savings bonds into the bank and get whatever their present value is any time you want. (That's what I did to buy concert tickets in high school.)

So having a piece of paper that says year "20xx" on it does not force the kid to save it, any more than having a coin collection or other instrument, FYI.

Well, I guess the lesson here is to never give your kid any money at all. Keep it for yourself, spend it on the P-Car and if he/she is good, then one day leave it to them in the will!

[dd74]

Baseball cards, concert tickets, candy = good use of government investments.

[cashflyer]

Savings bonds are marketed as "...reliable, low-risk government-backed savings products that you can use toward financing education, supplemental retirement income, birthday and graduation gifts, and other special events."

Grannies used to buy them for grandchildren because Granny remembered the Great Depression (tm), an era of pre-FDIC bank closures. They viewed savings bonds as being safe and sure.

Most of the depressed generation is reaching check-out time, so I guess the people buying today are either unaware of what a poor investment vehicle it is, or because it is still viewed as "safe", or they do it simply because young kids still really like the official look of them.

[dd74]

Well, there's a far cry from a do-nothing investment and flat broke, so I can see a granny's pov re. bonds.

Sure, they keep you afloat. But you're not going to catch any choice waves with them. Bonds are for when the tsunami hits.