haha
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Individual - EE/E Bonds Rates & Terms
I have a small amount of these bonds bought in 1986. They are earning good rates.The bonds issued in those years had rates that cold float up, but not down, until they reached original maturity which I think was defined as the time at which they achieved face value, which amounted to a doubling of the original investment. I am not sure how the rate that I am earning now (4%) was determined, but I suspect that it was the rate on new EE bonds at the time when my bonds reached original maturity.
This sweet deal exists no longer. If I were to buy EE bonds today, they would earn a fixed rate of 1.4% pa, which would not vary no matter what happened to rates in the meantime. In this sense it is more like a CD with certain restrictions on redemption. They are not redeemable for one year from issue, and after that there will be a one quarter's interest subtracted from a redeemed bond.
There appears to be an interesting kicker though:
At a minimum, the U.S. Treasury guarantees that an EE Bond's value will double after 20 years, its original maturity, and it will continue to earn the fixed rate unless a new rate or rate structure is announced. If a bond does not double in value as the result of applying the fixed rate for 20 years, the U.S. Treasury will make a one-time adjustment at original maturity to make up the difference. Series EE bonds earn interest for 30 years.
Since to double in 20 years equates by the rule of 72 to 3.6% pa, it seems that if we find ourselves in a continuing low interest rate environment much like Japan, we could keep these bonds for 20 years and they would return at minimum 3.6% pa over the 20 years. It is not clear to me what might happen after that, but my guess, and it is only that, is that they would revert to the 1.40%, unless treasury offered some other higher rate.
This doesn't seem like a real bad deal on US treasury bond with deferred tax on the interest and a perpetual put less one quarters interest after one year. I think each individual is limited to buying only $10,000 worth per year.
If we might be looking to construct a fixed annuity that would pay $20,000 per year starting 20 years hence, and which is completely reversible, there may be worse ways to do it. I have never seen this mentioned and maybe no one thinks that 3.6% pa on a 20 year bond makes any sense, but it's more than the treasury is currently paying on its 20 year marketable bond. And that one has no put feature.
I would welcome any comments or different interpretations from anyone who reads the linked article from the Treasury Direct website, or has knowledge about this from other sources.
Ha
I have a small amount of these bonds bought in 1986. They are earning good rates.The bonds issued in those years had rates that cold float up, but not down, until they reached original maturity which I think was defined as the time at which they achieved face value, which amounted to a doubling of the original investment. I am not sure how the rate that I am earning now (4%) was determined, but I suspect that it was the rate on new EE bonds at the time when my bonds reached original maturity.
This sweet deal exists no longer. If I were to buy EE bonds today, they would earn a fixed rate of 1.4% pa, which would not vary no matter what happened to rates in the meantime. In this sense it is more like a CD with certain restrictions on redemption. They are not redeemable for one year from issue, and after that there will be a one quarter's interest subtracted from a redeemed bond.
There appears to be an interesting kicker though:
At a minimum, the U.S. Treasury guarantees that an EE Bond's value will double after 20 years, its original maturity, and it will continue to earn the fixed rate unless a new rate or rate structure is announced. If a bond does not double in value as the result of applying the fixed rate for 20 years, the U.S. Treasury will make a one-time adjustment at original maturity to make up the difference. Series EE bonds earn interest for 30 years.
Since to double in 20 years equates by the rule of 72 to 3.6% pa, it seems that if we find ourselves in a continuing low interest rate environment much like Japan, we could keep these bonds for 20 years and they would return at minimum 3.6% pa over the 20 years. It is not clear to me what might happen after that, but my guess, and it is only that, is that they would revert to the 1.40%, unless treasury offered some other higher rate.
This doesn't seem like a real bad deal on US treasury bond with deferred tax on the interest and a perpetual put less one quarters interest after one year. I think each individual is limited to buying only $10,000 worth per year.
If we might be looking to construct a fixed annuity that would pay $20,000 per year starting 20 years hence, and which is completely reversible, there may be worse ways to do it. I have never seen this mentioned and maybe no one thinks that 3.6% pa on a 20 year bond makes any sense, but it's more than the treasury is currently paying on its 20 year marketable bond. And that one has no put feature.
I would welcome any comments or different interpretations from anyone who reads the linked article from the Treasury Direct website, or has knowledge about this from other sources.
Ha
