Series EE Savings Bonds vs. CDs vs. Money Market Account

[scfr]

I have a small CD maturing next month and I'm trying to decide what to do with the proceeds. Of the following 4 options, which would you choose?

1. Series EE Savings Bonds - hold for 20 years for a yield of 3.5% (locking the funds down for 20 years is feasible)
2. 10 year CD at 2.3%
3. 4 year CD at 2.0%
4. Park it in a MMA at 1.0% (in hopes that rates will go up)

Or some combination of the above?

[corn18]

May want to add another option of TIPS. They are earning nothing right now, but provide inflation protection. Depending on your goals for this money, they might be a better option.

[scfr]

May want to add another option of TIPS. They are earning nothing right now, but provide inflation protection. Depending on your goals for this money, they might be a better option.

Thanks tomhole. I already own TIPS (have owned since they came in to existence). For this CD maturing next month, I've narrowed my options down to these 4.

Edit - I consider the TIPS I own a valuable component of my investments, so while I won't be purchasing more TIPS with these funds, your suggestion is very much appreciated.

[corn18]

In that case, I would pick the 4 year CD. The extra 6 years for .3% is not worth the inflation risk unless it has a favorable early withdrawal penalty. And the early withdrawal penalty of a CD is worth the additional return compared to the MM account. The EE bond is just a TIPS without the insurance against inflation and the early redemption fee is onerous.

Tom

[frugal saver]

I was just looking at Treasury Direct and it says that the current yield on Series EE is .10%--where are you finding 3.5%?

My opinion--I'd choose option 2 1/2.

Get a 5 year CD for 2.3% and roll after 5 years to (hopefully) a higher rate.

Edit: Latest blog post for the best CD rates in the country. https://www.depositaccounts.com/blog/cd-rates-survey/

[scfr]

I was just looking at Treasury Direct and it says that the current yield on Series EE is .10%--where are you finding 3.5%?

My opinion--I'd choose option 2 1/2.

Get a 5 year CD for 2.3% and roll after 5 years to (hopefully) a higher rate.

Edit: Latest blog post for the best CD rates in the country. https://www.depositaccounts.com/blog/cd-rates-survey/

https://www.treasurydirect.gov/indiv/research/indepth/ebonds/res_e_bonds_eeratesandterms_eebondsissued052005andafer.htm

"Treasury guarantees that an EE Bond will be worth at least its face value after the first 20 years. If an EE Bond does not double in value (reach its face value) as a result of applying the fixed rate of interest for those 20 years, Treasury will make a one-time adjustment at the 20 year anniversary of the bond's issue date to make up the difference."
- Hence the stipulation that I would hold for 20 years. It yields an equivalent of 3.5% when the value is doubled at 20 years.

Rates I quoted were pulled from the Deposit Accounts page (longtime fan here too - always delighted to see others using them - so much better than Bankrate don't you think?) based on CDs I found desirable (based on rates, membership requirements, reviews, and financial stability).

So which of the 4 do you think the best option? Thanks for the feedback.

[feh]

I have a small CD maturing next month and I'm trying to decide what to do with the proceeds. Of the following 4 options, which would you choose?

1. Series EE Savings Bonds - hold for 20 years for a yield of 3.5% (locking the funds down for 20 years is feasible)
2. 10 year CD at 2.3%
3. 4 year CD at 2.0%
4. Park it in a MMA at 1.0% (in hopes that rates will go up)

Or some combination of the above?

Quick question - if you're willing to hold this money for 20 years, why not equities? That's your best bet for such a long time frame.

If you're set on restricting yourself to fixed income options, I'd take the 4-5 year CD.

[scfr]

Quick question - if you're willing to hold this money for 20 years, why not equities? That's your best bet for such a long time frame.

If you're set on restricting yourself to fixed income options, I'd take the 4-5 year CD.

My investment strategy is Capital Preservation and I already have plenty of equities. I agree that for many equities would be a good bet, but not for me.

[LivingAlmostLarge]

Same 4-5 year CD. What about private investment in RE? Doing a private loan to someone? Get much higher returns. Or you could be wild and do that peer to peer lending.

[scfr]

Same 4-5 year CD. What about private investment in RE? Doing a private loan to someone? Get much higher returns. Or you could be wild and do that peer to peer lending.

Thanks for the suggestions. Believe me, all are options that have been looked at.

P2P lending would be the equivalent of a high-yield junk bond, so not so appealing. Here in Texas, lending through Prosper is not allowed. Lending Club was approved at some point - not sure when, perhaps when they went public? Their recent scandal provides additional pause.

A private loan is something we considered once several years ago (but when terms were presented the potential borrower declined - we were willing to loan for a bit below average mortgage rate but not a lot, and requested copies of credit reports). If my financially-responsible sister ever decides to buy a home I would consider a private loan to her, but that won't be happening when this CD matures. I'm not interested in a large private loan to a stranger.

I can probably be happy with any of my 4 options.

[scfr]

The decision has been made. We're going with the 4-yr CD at 2%.
I wanted to put some in Series EE bonds. (I have more faith in our life expectancies than DH does.) DH wanted to put some in the MMA. (DH is more optimistic about sharp rate increases in the near future than I am.) The 4-yr CD is the one we as a team are both OK with.

Thanks for all the feedback.

[JBinKC]

I would take the money market account given the immediate portability of the money. If I am looking for something with a yield there are better alternatives than a bank or a government issued bond.