Friday, January 23, 2009

Holy cow, Grandma is beating Warren Buffett

You know the markets are in turmoil when stodgy old U.S. Savings Bonds are outperforming Wall Street.

Good old Series EE Savings Bonds are earning 1.3 percent now, which beats the pants off however many points the markets plunged today. Grandma's favorite alternative to spoiling the kids is even paying higher returns than Warren Buffett's Berkshire Hathaway, which is down to about $87,000 a share from the $140,000 neighborhood a year ago.

But the most rewarding Savings Bond to own right now is the Series I bond, which currently is paying 5.64 percent interest.

Series I bonds are the inflation-adjusted offerings that the Treasury launched just more than 10 years ago. Their rates, which are changed each May and November, are based heavily on what the Consumer Price Index did in the six months previously.

Right now those rates are about twice higher than many banks or credit unions pay because that $4 gas we bought last summer is cranked into the equation. That will change, of course. But cautious investors still might want to keep them in mind.

Savings Bonds pay interest for as long as 30 years, but can be cashed in sooner. There is a penalty - you lose three months' interest - if you redeem them within five years. You can pay taxes on the interest annually or defer it until either you cash them in or the 30 years is up. Uncle Sam sells them online or you can pick them up for as little as $25 and $50 at most banks and credit unions. Visit for more details.

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