Many people save for retirement using a Traditional IRA or 401K. Both of these investment vehicles offer the benefit of tax deferral (until funds are withdrawn during retirement) enabling you to compound returns. Another key feature of both these retirement accounts is flexibility in terms of investment options. You have the choice of investing in stocks, bonds, and even funds that hold commodities such as gold. Savings Bonds don’t offer the investment flexibility of a 401k or IRA. There are only two investment options (EE bonds and I Bonds). However, these are two extremely safe investment options.
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If your time horizon for cashing in is less than 20 years, then I bonds are your best choice. EE bonds, if sold before maturity (20 years after purchase), are paying less than one percent interest. I Bonds are currently paying interest at the rate of inflation. Over the last 5 years, inflation has averaged a little over 2%. However, some well known figures believe that inflation could rise to 3, 4 even 5% over the next few years. (You can find up to date savings bonds rates here)
If your time horizon is 20 years or longer, the question is more complicated. When held to maturity, EE savings bonds pay 3.5%. If you think that inflation over the next 30 years is going to be less than 3.5%, then EE bonds are the better choice. While historically inflation has averaged well below 3%, we are in interesting times. If you don’t have a strong notion of future inflation, I would suggest a mix of 50% EE and I Bonds.
If two people are listed as joint owners of the savings bond, the remaining owner can cash in the bonds. Savings bonds with one owner can have another individual listed as a beneficiary. The beneficiary will receive the savings bond in the case of the owner’s death. If the owner or owners of a savings bond is dead and there is no beneficiary, the saving bonds become the property of the estate. More information on this can be found at Death of A Savings Bond Owner.