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Savings-Bonds-Alert: Double-value clarifications

Tuesday, October 12, 2004

Double-value clarifications

I want to make sure I understand how this works. If I buy a $50,000 Savings Bond for $25,000 it will take 20 years to reach maturity? Tom's Response Well, it's more complicated than that. First, if you invest $25,000 in Series EE bonds, you'll get five $10,000 bonds (the largest demoninatin) with a guarantee that they will double in value in 20 years. However, they could double in value much faster than that, depending on the prevailing level on interest rates in the market. The interest rate you'll earn will be 90% of the average five-year rate for marketable Treasury securities. The rate is adjusted every six months. Unlike a regular bond or CD, which has a locked-in rate, Savings Bonds give you the current market rate. It's an adjustable-rate investment. You won't be able to redeem your investment for one year, there's a three-month interest penalty if you redeem before five years, and the bonds will stop paying interest after 30 years. You also get tax deferral on the interest until you redeem the bonds, and there's no state or local income tax. Alternatively, you could invest in Series I Savings Bonds. In that case you'd earn a fixed-base rate of interest that's locked in when you buy the bond (currently 1%) plus whatever the inflation rate is every six months. The other rules are much the same as Series EE, except there's no guarantee that the value will double and you'd get two $10,000 and one $5,000 bond for $25,000.


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