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Tyler
Tyler

The comments about short term interest rates being high right now making these long-term investments unattractive can be reasonably argued, but isn’t always the case since there is a decent chance that interest rates fall well below that amount at some point in the next 20 years, so your total return might end up worse sticking with short-term investments (though it may be worth it for liquidity/optionality, and likely is).

The real proof that this is a bad deal is because 20 year treasury bonds are currently trading with an implied 4.42% yield. You have mark-to-market risk if you want to sell before 20 years, but your total return over the next 20 years if you do not sell would be 4.42%. Ignoring slight differences in cashflow timing and taxes (these EE bonds aren’t taxed until redemption, I presume, while regular Treasury notes will have taxable coupons every 6 months), but the 0.92% higher return plus the option to sell in the interim (albeit at an unknown market price) dominates this option.

Dan
Dan

Is there a single 20 year term in which this bond will beat investing in equities? I don’t think so.

gaga
gaga

this is such a horrible investment, to lock up your money for 20 years and only getting a 100% return for the entire duration. I dont know why this is even been posted/suggested. Avoid and just buy regular treasury.

ceejayoz
ceejayoz

Yeah, inflation in the last 20 has been 65%. That $200 isn’t worth $200 by the time you get it.

David
David

20 year treasury yield is 4.37%. This wouldn’t be worth it unless you end up in a situation where rates increase significantly sometime in the next 20 years/ you need the money sometime before maturity. Don’t feel like calculating the actual breakeven point there especially since it involves probabilities of various situations… but I personally would favor a treasury ladder/ not locking my money up for 20 years.

Mantis
Mantis

Guaranteed to double in 20 years? That’s a terrible long term option. If your investment horizon is 20 years you’d be much better off with a s&P500 index fund.

Elton
Elton

The equivalent of EE bond is 20year US treasury, currently at 4.2%. So I don’t think anyone should buy EE bond.

Jahn Anders
Jahn Anders

Yes, even though one could lose principal if he sells the treasury early, if he holds a 20 year treasury to maturity, he is guaranteed 4.2% with no risk of loss. The only scenario any of us is even considering buying EE is to hold to 20 years, so it’s an equivalent comparison and the EE loses heartily.

Andrew
Andrew

Considering you can get secondary market treasuries for 4.5% ytm with 6 months to 2 year maturity not worth it

potatoslayer
potatoslayer

Considering we now having checking/savings accounts that are at 3%, I don’t think the current environment makes this worth the lack of liquidity. There’s also an expected rate hike coming from the fed and my savings/checking accounts have gone up with each hike, so there’s a possibility of 3.5-4% for savings accounts soon.

Amex
Amex

1 year+ t-bills up to 20 years are all at > 4% right now with all the safety of treasury bonds but ability to sell at anytime on open market. Would suggest this over EE.

IShares also offers ETFs targeted to dates if you don’t want to trade specific notes, again all above 4% yield to maturity.

Henry
Henry

I just cashed in several Series EE bonds issued back in 1992. Based on the interest rate payout over 30 years, the approximate annual simple interest rate was 10%. My only regret is that I did not buy a much larger amount from 30 years ago.

jd
jd

the 10% figure is extremely misleading and shouldn’t be taken seriously…you got an an average of 4.85% annual return. the s&p in comparison averaged 9.65% per year over the same period. Not bad for a safe play, but not great if you knew your time horizon beforehand…

Henry
Henry

Yes, the average interest rate is likely much less over that time period. I based my interest calculation on a very simple equation which just took into account the original principal amount and extended that to 30 years. Based on a fixed rate of 5%, the annual interest computed came to a total interest amount which was around 1/2 of what I actually received over 30 years. I would expect the market return in that same period would be higher overall. Between the 2008 subprime financial crisis up to today, the market return increased my 401(k) balance to a very high amount.