Dear Mary: For 40 years I've been giving my grandchildren U.S. Series EE bonds. Now I'm reading that rates for the bond are very low. A $100 bond earns just 60 cents a year. It does not seem wise to keep purchasing bonds for my grandchildren and great-grandchildren. What do you recommend instead?
- Beverly, California
Dear Beverly: Here's how U.S. Series EE bonds work: When you buy a $100 bond for your grandchild, it costs you $50 (the purchase price is always one-half of the face value at maturity). Once it is fully matured, it is guaranteed to be worth its face value of $100.
At a minimum, the U.S. Treasury guarantees that an EE Bond's value (the value of a $100 bond is $50 upon purchase) will reach maturity in 20 years, and if not redeemed, will continue to earn the fixed rate interest for another 10 years unless a new rate or rate structure is announced. If a bond does not double in value as the result of applying the fixed rate for 20 years, the U.S. Treasury will make a one-time adjustment at the 20-year mark to make up the difference. Bottom line, EE bonds purchased today will earn the effective yield of 3.6 percent, but only if your kiddos hold them for 20 years.
U.S. Series EE Savings Bonds remain a no-brainer way to give money to your grandchildren with the knowledge that it will double in 20 years without any work on your part. But here's the problem: That fixed rate of return will not keep up with inflation - $100 is losing its buying power. Who knows what a hundred bucks will buy in 2022? It's a good bet that it won't be much.
As an alternative way to give gifts of value to your grandchildren that have a high likelihood of increasing in value over time, let me suggest giving them silver bullion in the form of coins or bars. There are no guarantees, of course, but these days, precious metals are outperforming the U.S. dollar. That's just an idea for you to consider.
You can buy silver coins from any reputable local coin shop. One of the most reputable online sources for precious metals that I know of is APMEX.com. I have found it to be trustworthy and reliable. Another option is to buy directly from a mine. Great Panther Silver Ltd. is an example of a mine that sells silver bullion through its online store at GreatPanther.com.
Just keep in mind that safe storage will become a factor that your grandchildren's parents will need to consider. It's not a big problem - simply a matter of management. By the way, as I write, a 1 ounce silver coin (also called a "silver round") of .999 purity is retailing for $37 at Great Panther, plus shipping.
Send questions to email@example.com or Everyday Cheapskate, P.O. Box 2135, Paramount, CA 90723.