Sunday, January 1, 2012

High Interest Rates and Low Risk Investment

You don’t normally hear about high (relatively speaking) interest rates and low risk in the same sentence. Bank and Credit Union savings accounts are currently paying from 0.01% to 1%. However, there is a place that you can invest your money that is safer than a bank and whose interest rate is higher, the US Treasury.

In November of 2011, the Bureau of Public Debt announced that the earnings rate for Series I Savings Bonds is 3.06%, and the Series EE Bond rate is 0.60%.   The rates are adjusted every April and November, so the rates are good until April 2012.
I Bond rates are the combination of a fixed rate and semiannual inflation rate. The fixed rate applies for the life of the bond, and is currently 0%. But, the inflation rate is presently set to 3.06% and will remain there until the next adjustment date, April 2012.  EE bonds issued between November 2011 and April 2012 will earn 0.60% for the life of the bond.
Here are some quick facts about I & EE Bonds purchased electronically (not paper):

  • Sold at face value; you pay $50 for a $50 bond.
  • Purchased in amounts of $25 or more, to the penny.
  • $5,000 maximum purchase in one calendar year.
  • Issued electronically to your designated account.
If you redeem I/EE Bonds within the first 5 years, you'll forfeit the 3 most recent months' interest; after 5 years, you won't be penalized.
Interest earned from bonds is subject to federal income tax, but it’s deferred until redemption, final maturity, or other taxable disposition, whichever occurs first.  However, you may be able to exclude all of the interest from your gross income if you use the bond to pay for qualified higher education expenses. You can visit the Treasury Direct website to get more information about saving bonds. 

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