Savings Bonds Are a Lousy Prize


This month I was going through our savings bonds and typing them into the Treasury website to see what they were worth.  I discovered that one of them that my wife had from 1984 had stopped paying interest (EE bonds stop after 30 years).  The value of the $50 savings bonds, which was bought in 1984 for $25, was something like $116.  Note that bonds at that time came with a guaranteed interest rate of 4% per year.  More recently they went to a floating rate that is currently a little of 1%.

US Savings bonds might be a decent alternative to bank CDs – I haven’t checked and compared the rates.  Looking at this particular bond, however, I can see that it was a terrible prize.

You see, my wife won this bond in an eighth-grade science fair.  I can just see her now, excited to win a $50 bond. (Note that the $50 is a misnomer – they are actually worth $25 when you buy them.  They double the value on the face to make them seem like something more than they are.)  I can also see her parents tell her she needs to save it up and it will be worth a lot more someday.  I also expect that the group giving the prize felt that this was a way to teach her to save and invest her money.  They were “starting her on her way to saving.”

Looking at it now, it seems like she got jipped.   As an eighth-grader back in 1984, $25 would have seemed like a lot of money.  She could have bought something nice that she could have used and enjoyed for years.  Now, as an adult with a family with an income of tens of thousands of dollars per year, the $116 she can get doesn’t seem like much.  Hopefully it won’t disappear into a checking account.  Maybe she can get a nice blouse or something, but nothing she couldn’t easily afford.  As I’m sure most readers know, as you get into your late thirties and forties, even suggesting a gift you would like becomes difficult because you tend to buy the things you need and most of the things you want.

A better prize, if the group wanted to encourage savings, would have been a contribution to a bank account for her.  Even better, if they had the money to offer a truly large prize, they could have given her shares of a mutual fund in a Uniform Gift To Minors Account (UGTMA).  She and her family could then continue to contribute to that account and she’d be in great shape by the time she was ready to leave home.  It could have resulted in the down-payment for her first house (or even the whole house, depending on how aggressively she saved).

So what’s your thoughts?  What would be a good gift to start children saving?  What do you think she should do with her $116 that would be special and memorable?  Comments?

Your investing questions are wanted. Please send to vtsioriginal@yahoo.com or leave in a comment.

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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

2 comments

  1. It seems like a savings account would conceptually have been better, but realistically, the school probably wanted something they could just purchase and be done with instead of having to prod the student’s parents to open some sort of account.

    Also, keep in mind that just like all asset types, some savings bonds are a lot better than others. I purchased $5,000 worth of I-Bonds in early 2001, and these have probably been one of my best investments ever. They have been earning 3.4% + CPI guaranteed this whole time, and unlike most bonds, the interest is tax deferred until you cash it in. But I agree that savings bond rates right now are not a great deal.

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