2 ms·
They are guaranteed to double after 20 years (hence 3.5% rate).
by phonon 10y ago
They are guaranteed to double after 20 years (hence 3.5% rate).
- ghaff 10y agoIn current dollars.
- umanwizard 10y agoTo explain a bit more what I mean by interest rate risk: Imagine I buy $1000 in EE bonds today. Then tomorrow, conditions change, and the government starts selling 20-year bonds with a 7% rate. My bonds are now worth much less than $1000 -- no one would buy them from me on the open market, except at a substantial discount, since they could just buy the higher-yield ones for $1000. These conditions that led to a higher interest rate are probably also leading to a higher inflation rate. So my $1000 is locked up for 20 years in an instrument where it's decreasing in real value.
- phonon 10y agoYes, I know that. EE Bonds are not intended to be that liquid, they are meant to be held to maturity.
- umanwizard 10y agoOkay... so they're higher risk than a savings account.
- phonon 10y agoWell, depends on what "risk" means...default risk? Inflation risk? How about currency risk? What if the dollar gets weaker? You need a totally different hedge for that...a savings account would not help.
- phonon 10y agoYou also nicely elide that since a savings account currently averages a 6 basis point APY[1], it's already giving an inflation adjusted negative return. So a savings account has gone past the "risk" stage to the "losing money" stage. [1] https://www.fdic.gov/regulations/resources/rates/ https://www.fdic.gov/regulations/resources/rates/
- phonon 10y agoIn any case, my answer was only half-serious. But you wanted to know "What gives higher returns but near-zero risk?" and assuming by "risk" you meant "default risk" there you go....a high interest low denomination savings instrument backed by the federal government.