1. Home
  2. Financial Planning
  3. Treasury Direct v. Paper Bonds

Treasury Direct v. Paper Bonds

I recently opened up and account with TreasuryDirect and got a $1000 bond for my son's 1st birthday. I was doing some research for my daughter's 1st birthday purchase to match and wondered what the difference between the Series EE bonds sold on TreasuryDirect and the paper bonds sold at most reputable finacial institutions really was.

  1. Do the bonds on TreasuryDirect have the same guarantee as paper bonds in that the bond will mature (double the purchase price) after 17 years?

  1. When buying bonds on TreasuryDirect, what does the interest rate follow? My wife has a few paper bonds from her first birthday that racked up about 5.4% APY over the past 20 years... The bonds I've got for my son are doing about 2.5% APY.

  2. Will buying the paper bonds from the bank rather than on TreasuryDirect in any way benefit my daughter when she cashes them in.

I did see a conversion account moniker for TreasuryDirect where one can convert paper bonds to electronic bonds, but the site lacks information... I didn't even know if, when I put in the $500 bond amount on the initial purchase, I was actually buying a bond for $250 or one that will mature to $1000.

From what I can see it is the same as putting money in an ING Direct

account, you add money and that money earns interest no matter what amount you add... and at 2.6% APY on the ING Direct acct, the advantage of having your money liquid is pretty nice.

Any enlightened souls out there willing to help?

Reply to
sdlovell
Loading thread data ...

EE Bonds can be used tax free to pay for education. If you are buying the bonds for a child this could be a big advantage.

EE Bonds have a guarantee of doubling your money in 17 years which amounts to a 4.17% annual yield if held the 17 years.

EE Bonds can be tax deferred. You can hold them for 30 years and only pay tax as you cash them in. So depending on what your tax bracket is now versus when you cash them you could save taxes.

It depends on what your purpose is for investing. If you are creating an emergency fund, then you would want liquidity. If you are saving for the long term toward a goal, e.g. pay for college tuition, retirement, etc. then you should be looking for investment yield, tax savings, and degree of risk you are willing to take.

Long term an ING Direct acct isn't going to give you much for your money. Buy the EE bonds in smaller denominations and then if you need to cash one in you'll only suffer a penalty(if you haven't held it for 5 years) on the small amount you need to cash in. Also I believe you have to hold an EE bond a year before you can cash it in at all. Again, Money Market vs EE depends on when you might need the money.

Of course there are lots of other options other than a Money Market and Savings Bonds. And all investments have risk. A Money Market fund might be more liquid but there is also a small risk that you could lose some principal. EE bonds you won't lose principal but there's a penalty for early withdrawal. Both have inflation risk.

Frank

Reply to
Frank

Make sure you understand the rules under which this can happen. The bonds have to be registered a particular way and if your income is too high you can forget about this.

Key words -- *if held the 17 years*. The actual variable rate you get is 90% of the current average of 5-year treasuries, and that's true for the life of the bond. The guarantee only kicks in if you hold the bond at least 17 years. At the 17-year mark, the Treasury will make a one-time adjustment to bring the value of the bond up to face value if it's not there yet.

Right now the rate is 3.25%. You're penalized 3 months' interest for withdrawal before five years are up, which means that unless you hold for more than five years, the approximate rate is 2.44%.

Reply to
Rich Carreiro

Isn't this a post-o?

Approximate annual yield if bonds are held: one year = 2.43% two years = 2.84% three years = 2.98% four years = 3.04%

Using overall yield = [1.0325^(n-0.25)]^(1/n), where n = number of years held.

"Rich Carreiro" wrote About EE bonds and the one-quarter year interest penalty--

Reply to
Elle

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.