Childs EE bonds. Looking for alternative.

[Appatite]

So, my son is 8 years old and has about $2500 in EE bonds his grandma and others have purchased him. Last time I looked in 2007, they were making about 3%. I looked on them again yesterday and found that they are now averaging 2%. Well, I was hopping to get some advice on what these should be moved into, if anything. I have a few criteria though. (He already has a 529 plan)

1. Relatively maintenance free. EE bonds I just sat on and waited.
2. Should be able to perform somewhat better than 3%.

Now, technically I plan on giving him his money back by the time he is in his final year of college so that leaves me about 14 year timeframe.

It would be nice to make him some extra % but the way these markets are these days, I'd rather make 3-4% rather than lose him 5-7%.

But all advice is certainly welcome and I could probably be talked into a slightly higher risk for his money.

 

[Sensei]

I bought a few EE and I bonds a couple years back, thinking I was being smart. Then I realized how low the return was, and how long the money is locked up. My understanding is the EE bonds have a fixed interest rate for 30 years, and that you buy them for 50% of the face value. So they say that by the 20th year, the interest is guaranteed to bring it to face value. Don't you have to actually ride out all 30 years for it to mature and be worth the face value plus interest? When I realized that, I bought a few I bonds, with variable rates, that you purchase at the full face value and can cash in w/o penalty after 10 years. Needless to say, I gave up buying bonds altogether and am now just sitting on them, waiting to use them to buy dentures and hearing aides when I become more advanced in years.

I also opened an ESA (education savings account), where I can purchase IRA certificates that lock me into rates for up to 7 years. Almost as soon as I started that, the interest rate starting dropping a quarter each month until it is now at 2.75% for a 7 year certificate. So last month I took the plunge and started buying stocks. Who knows how that will work out? At least I'm making some sort of effort now to put money aside for the future.

Some others on here will probably have more sound advice for you, but know you're not alone in the quandry over how best to save for your kids.

 

[nasa1974]

My in-laws bought EE bonds for both my daughters for years. The girls are 26 and 29 and we are still waiting for maturity. Way back when the bonds where earning 4%+, but I'm pretty sure they are earning around 2% now. I will have to get back online and check. They where a good investment back in the 70's and 80's.

 

[Appatite]

EE bonds rates change. SOme had gone up over 4% for a while. You can also sell them prior to maturity. You do have to wait a certain amount of time or be penalized a small amount, 3 months interest. At this rate we are talking a few dollars max. I think the time period is 6 months. So I am pretty much free to do what I want with them.

 

[Sensei]

Here's the explanation of EE bonds from Treasury Direct. http://treasurydirect.gov/indiv/research/indepth/ebonds/res_e_bonds.htm
You must have EE bonds from prior to 2005. Mine are more recent with a fixed rate. And they don't reach face value until they've matured.:suspicious:

 

[Birchtree]

You can't go bad wrong opening a discount brokerage account in the childs name - purchase some drug stocks like PFE, BMY, MRK, and reinvest the dividend income. This way any relative can pump money into the account up to I believe $10K tax free. Any child doing this will be well off into the future - America is great.

 

[Monty]

Paul Merriman has an interesting suggestion for investing money for children/grandchildren.

http://www.fundadvice.com/articles/parents/my-500-year-estate-plan.html

 

[Scout333]

Thanks Monty, Interesting. Not crazy about his projections i.e. a little overly optimistic for my liking but it is good to think outside the norm. To keep risk in an acceptable range investment choices should be very conservative. So earnings projections and withdrawal/distributions should not be higher than 4% to 5% possibly less taking into account economies like the one one we are in.

 

[Sensei]

The current interest rate for I bonds is 0% fixed and 4.6% adjustable. Any opinions on the outlook beyond November, when rates change? I certainly wouldn't mind a 4.6% interest rate for my kids' college savings, but since it's adjustable, it could easily go down. I'm thinking that with the dollar as weak as it is, inflation should keep the adjustable rate high for a while. But for how long?

 

[FundSurfer]

http://www.clarkhoward.com/news/clark-howard/education/clarks-529-guide/nFZS/

I suggest putting the money into a 529 plan. See Clark Howard's advise at the link above.

 

[Sensei]

That's a great link. I'm giving 529 a look. I already have a Coverdell account set up w/ my credit union, but the interest rate for a 7 year certificate has been at 2.75% for the past several months, so I'm looking for a better option. Of course, most of the 529s are similar to our TSP L-funds, and will be at the mercy of the market's performance over the next 12-18 years. Anyway, thanks for the advice.