The savings bond has long been the iconic gift for young folks. But does tradition mean they’re a good value? Yes and no. Consider these:
Bonds are exceedingly safe.
They are backed by the credit of the federal government. Even if you lose the certificate, the feds will replace it.
Safety is one thing, value of investment is another.
Rates for the popular EE bond — which are fixed for the life of the bond — are very low. New bonds currently carry a lifetime rate of only 0.60%. “That means a $100 bond earns just 60 cents a year,” says Faye Doria of Financial Guidance Associates in Dover, N.H.
There are issues of ownership. Savings bonds are often given to newborns or graduates with the expectation that the earnings will be tax-free if used to pay for college. However, the bonds must be owned by the parents for income to be free of taxes. Also, there are limits on the parents’ income, so not everyone qualifies.