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Better Than Checking? Try Savings Bonds

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Savings bond rates won’t be so good for much longer.

Consumers tired of low-yielding checking or savings accounts might want to consider those sleepy savings bonds typically associated with birthday or high school graduation gifts. But to get the best deals on them, they’ll need to act fast.

Series I savings bonds are currently yielding 4.6%, well above the 0.39% average rate for a one-year certificate of deposit and the 0.15% for savings accounts and money market deposit accounts, according to Bankrate.com. But that rate, which is based on inflation, will be reset on Nov. 1 and some analysts expect it to come down to about 3.3%. Investors who buy the bonds before Nov. 1 can still lock in the 4.6% rate for at least six months. (Series I savings bond rates also have a fixed-rate component that lasts throughout the 30-year life of the bond. The fixed rate is currently 0% and is expected to stay there.)

Another reason to buy soon: starting Jan. 1, you won’t be able to buy as many savings bonds as easily as you can now. Currently you can buy a maximum $10,000 in Series I savings bonds by purchasing as much as $5,000 in bonds electronically at Treasurydirect.gov and up to another $5,000 in paper bonds at a bank or credit union. But starting next year the Treasury will stop selling paper bonds at banks, and will offer them only as a payment option for your income tax refund. That change will limit most investors to buying a maximum $5,000 each year – unless, of course, you manage to wrangle a $5,000 tax refund.

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    • Put into your 401(k) the minimum amuont necessary to collect the maximum firm contribution. That’s free money they’re giving you.Next, get a ROTH IRA and max it out every year. Tax free forever. That’s free money too.If you can do more, then go back to your 401(k) and max that out to the legal limit.If you can still do even more, then consider other options.Take advantage of all the free money you can.

    • you forgot to mention that they have to be owned for 5 years to not incur any penalties:

      Early redemption penalties:

      Before 5 years, forfeit 3 most recent months’ interest
      After 5 years, no penalty

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