I bonds, EE bonds, CDs????

[jodi]

As a newbie to investing in bonds or CDs, I don't know which way to go. I want to put aside some money for my boys. I have about $500 for each. I was seriously considering an I-bond after what I read here, but after looking at the rates (even though they are high now), it looks as though they have been going down for a while. Another option is the EE bonds. Then I mentioned this to someone tonight who told me to just put the money into CDs, which she said are earning 4.5 or so now.
Any suggestions? I want to put the money away for a long time, probably 15-20 years, while earning the maximum return on a relatively safe investment. Right now I have the money in a savings account earning 3.5%, although I could switch the money to a different account and earn 4%. I would appreciate any comments people have as I start to wade through these murky waters.

[jodi]

anybody???

[terry1156]

Since nobody knows the future, it's a tough call. All have positives if certain things happen and negatives if other things happen. Personally, if you are going to be holding the money for that long, I would put it into a stock index fund, but there is more risk there than the options you are considering.

What I've started to do lately is take advantage of all the promotional offers banks are offering and the money/gifts that come with them. I count these as part of the "interest" earned and it usually brings the overall return above 5%. This takes more work than simply putting in one investment, but if you're trying to maximize.

But before you consider anything else, take the first $500 for each and open an <a href="http://www.savingadvice.com/forums/showthread.php?t=6296">Affinity Bank</a> account for each of them. That is a guaranteed 10% return which you aren't going to find anywhere else.

[sweeps]

I agree with Terry. 15 to 20 years is a long time to invest and a lot can happen during that time. Over a 20-year period, stocks are not as risky as you might think. The risk you take in putting your money in bank accounts and CDs over such a long period is that inflation will erode away your earnings. In fact a CD is the last place you want to park your money when rates are increasing.

The other options each have pros and cons. You live in New York, correct? Savings bonds are exempt from state taxes, so that would be a factor to consider. A 4% savings account is nice because the money is very liquid and can quickly be moved to take advantage of other deals that might arise.

[ken1706]

One other nice thing about I Bonds is that you may be able to exclude some or all of the interest if used for higher educational expenses.

http://www.publicdebt.treas.gov/sav/saveduca.htm

I think I Bonds are a much better deal than EE Bonds. My only concern about I Bonds is that the current fixed rate (1.0%) is the lowest that it's been since it started. Back in 2000, the fixed rate had been as high as 3.6%. This fixed rate is what the I Bond earns above inflation and is the important rate consideration for someone interested in this for the long term.

Another option is to keep the money in your current high-yield savings account or put it in a 6-month CD and wait for next May. My guess is that the Treasury will make a significant increase to the I Bond fixed rate then.

[jnsaver]

Jodi,
Investing in an 529 plan or index fund is a great idea if you can tolerate risk and won't touch the money for years and years. You'll probably make an average of 10% a year if the markets continue on their current trajectory.

However, if you can't tolerate risk or think that there is even a slight chance that you will need to access that money for any emergencies, consider opening a CD ladder. Open cds five or more cds in each boys' name at different intervals 1 year, 2 years, 3 years, 4 years, 5 years. If rates are high when your one year cd matures, take the money and open a five year cd. If cd rates fall and you think you can get better interest somewhere else, invest in your new project.

If you're afraid of rising inflation over the next 10-15 years, open bonds. Your principle will stay safe and you will be protected from inflation. However, your money will be locked in for quite some time.

[CJsoccerchic]

I'm quite affraid of tying up money in a place that I cannot touch it for years and years to come, so these days I go with the "cd's" offered to me by my banks. You can get like a 30 month CD from ING for 4.75% - with no minimums or hassle (so says their website) So give INg or your local bank a shot for the short term stuff!! I currently have 2 "cd's" the both of them combined is like 550$, but hey, it's money that "i don't need" for a year I think that CD's are great for short term goals - like saving money for christmas. Open one today and periodically put money into it for the whole of nextyear and come 1 December 2006 - you'll have money to buy presents with!

[jnsaver]

If you don't want to tie up your money, this guy has a good suggestion:

http://www.mymoneyblog.com/archives/...nds/index.html