Inflation Can Be A Good Thing …When It Comes To Savings Bonds

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investing-with-savings-bonds-by-pocketaces.jpgFinancial guru, Clark Howard recently did a news story on how to make inflation pay off.

You had better believe this immediately caught my attention!  I could not imagine a single way to make inflation pay off in my favor, but Clark Howard could.

Clark Howard’s suggestion is to purchase saving bonds. 

More specifically, Clark says that I-series savings bonds beat bank CDs by quite a bit. 

The "I" in I-series stands for inflation and these savings bonds will give you a fixed base rate, plus an inflation rate, as well.  Altogether, an I-series savings bond purchased today will give you 4.28%.  But that’s not all.  According to Clark Howard, “In 6 months, because of inflation, the interest rate will go to 6%; double what lots of banks offer on traditional CDs.” 
 

View the video and the entire story.

 

Should I Cash In My EE Bonds For I-Series Bonds?
Upon hearing this story, my mind wandered off to something just a few feet away from me: the pile of savings bonds that were purchased for my kids the year they were born.  We’ve had the bonds for over 10 years now, and I have to wonder if it makes sense to cash these in and get new I-series bonds. 

My children have series EE bonds that were purchased between 1995 and 1997 that take 20 years to mature but can be cashed without penalty after 5 years, so we do have the option to cash them in.  After a little investigation I found this: 

Series I Savings Bonds To Earn 4.28%, Series EE To Earn 3.00% Fixed Rate, When Bought From November 2007 Through April 2008”  Source

This means I will maximize the earnings on my children’s savings bonds if I cash in the existing EE bonds and purchase I-series bonds instead. 

More Tips Regarding Savings Bonds
While on the Treasury Direct website that I used to research the idea of transferring my bonds, I was also able to calculate the value of our current savings bonds.  The site even has estimation calculators that will allow you to plan your savings, as well as a tax advantage calculator.  

You can purchase your I-series savings bonds online at this same website, at most banking centers, or arrange to purchase them through payroll deductions. 

Clark Howard did have one caveat about grabbing up those I-series savings bonds though.  If you want to take advantage of this deal, you need to act now since the government plans to cut the fixed rate of bonds on May 1, 2008

And finally, while you are visiting the Treasury Direct website, you may want to convert your savings bonds from paper to electronic form using the SmartExchange system

SmartExchange allows TreasuryDirect account owners to convert their Series E, EE and I Bonds to electronic securities in a special Conversion Linked Account within their online account. With a TreasuryDirect account, you enjoy all the benefits of having online 24-hour access to manage your holdings, without having to keep track of paper securities.”

Learn more about updating your savings bonds here.