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Savings-Bonds-Alert: Misinformed advisor of the day

Monday, June 28, 2004

Misinformed advisor of the day

Many financial advisors just don't understand Savings Bonds. In the latest example, see Thursday's (6/24/04) Jackson Sun News (Jackson, Tenn) article on Savings Bonds, Don't overlook a savings bond when investing. Although the reporter of the story has the facts, the advisors he quotes say things like: ''If you are looking for a guaranteed rate of interest, and you want to know what you will have at maturity, a savings bond is a great investment,'' said Eric Allen, an investment representative with Edward Jones in Trenton. In fact, new Savings Bonds haven't had a guaranteed rate of interest since May 1995. And you'll never be able to predict what you'll have at maturity - the primary characteristic of today's Savings Bonds is that they are one of the few interest-beraring investments with rates that adjust to follow the market every six months. Michelle Prince of PFIC Securities in Jackson said savings bonds may not provide the best hedge against inflation. ''Interest rates on these types of investments are at historic lows,'' she said. ''With interest rates as low as there are right now, there may be better options.'' Prince recommended opening a money market fund instead, which she said sometimes can be opened for as little as $500. In fact, the interest rate on Savings Bonds is currently over twice the average rate available in Money Market funds (see Comparable Market Interest Rates), Series I has total inflation protection, and Savings Bonds can be purchased for as little as $25.


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