Humble U.S. Savings Bonds Are Once Again Looking Like a Shrewd Choice for Investors

Through all the ups and downs of interest rates in recent years, the humble Series EE Savings Bond has kept many small savers reasonably calm and happy.

When interest rates on many other types of investments tumbled to 20- and 30-year lows, the return on EE bonds didn’t fall as far.

Now that rates have bounced upward again, yields on EE bonds are poised to move up as well.

“Series EE Savings Bonds look pretty good when you compare yields on short-term CDs and money market funds,” says the newsletter Kiplinger’s Retirement Report.

“EE bonds have a variety of features that individual investors should find attractive in these times of volatile interest rates,” add analysts at the Value Line Investment Survey.

Nobody has ever touted Savings Bonds as a go-go bull market investment. When stock and bond prices are rising, as they have so often in the 1980s and 1990s, Savings Bonds can’t participate in the rally since they aren’t traded in any secondary market.

But if you bought EE bonds any time in the dozen years since the Savings Bond program was overhauled and modernized in 1982, you haven’t fared too badly.

Buyers of EE bonds from late 1982 through October, 1986, were promised, and still get, a minimum annual yield of 7.5%, provided that they held their bonds for at least five years.

On bonds sold from November 1986 through February of last year, the minimum yield is 6%. For new bonds sold since then, the floor is 4%.

But those 4% bonds are paying more than that right now, under a formula that resets the EE bond yield every six months at 85% of the average yield on five-year Treasury notes, whenever the resulting figure is more than the minimum.

Since May, the EE bond rate has been 4.7%. When it is recomputed for the six months starting in November, it promises to rise to between 5.5% and 6.0%. As of late August, five-year Treasury notes were yielding about 6.8%.