Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, December 30, 1993 TAG: 9312300152
SECTION: BUSINESS PAGE: A-9 EDITION: METRO
SOURCE: The Baltimore Sun
DATELINE: NEW YORK LENGTH: Medium
Wrong. Sales of Series EE bonds set a record this fiscal year ended Sept. 30, with more than 50 million Americans investing $17.3 billion. That's a 28 percent increase over 1992, when $13.5 billion were sold.
The reason for the bonds' popularity, however, is not very clear. While personal finance experts say the bonds can have their place, they worry that the bonds, which have a guaranteed yield of 4 percent, are being used as a substitute for long-term investments.
"I'm in favor of anything that will make people save. It's better than going out and buying a fancy lunch, but if you want to do something for your kids, you'd probably be better off to open up a growth and income mutual fund," said Paul Brown, a financial planner and co-author of the book "Grow Rich Slowly."
The bonds are a good place to park cash for six or 12 months. With a guaranteed 4 percent minimum, they compare favorably with the average 2.8 percent rate for six-month certificates of deposit at a bank.
But as New York-based financial planner Rob Harrigan points out, that works out to only $60 for $10,000 in bonds. Add to this the hassle of not being able to buy the bonds through brokers and the difficulty in replacing lost coupons, and many investors may not feel the difference is worthwhile, Harrigan said.
Until March 1, the guaranteed interest rate on bonds held for at least five years was 6 percent. Now the minimum is 4 percent.
There's a difference between an EE bond's guaranteed rate and its current market rate. The market rate is adjusted every six months, to 85 percent of the rate on five-year Treasuries. It's now 4.25 percent.
Before the rate was cut, sales of the bonds averaged $2 billion a month. That slid to $800 million a month, however, as investors turned to higher-yielding investments.
by CNB