Buying Bonds 4 My Son ................

[DieselMinded]

Ive been purchacing "I" and "EE" bonds for my 2 yr old son sence he was born currently hes up to $4000 face value "I" & "EE"



Does anyone have a clue how these things work??? how much can he exspect on his wedding day its going to be a big surpize I was going to give them to him when he is 16 so he can go buy a nice CTD but the wife is not for that at all ... so its a wedding day thing.



Im planing on buying a few every mth as long as I capable ... but lets just say I never bought any more than the $4000 he has now in 20 or so years how much will they be worth???... ball park figger is fine???



What I do is put $120 a mth in his own savings ""online""



when ever he breaks $1000 I buy the bonds down to the point where he only has $200



If I continue to do this ... ... .....



2 yrs so far $4000 face value

20 more years of doing the same thing $40000



No Way they could be worth that



BTW --- if he goes to collage the bonds will go to work



marriage or collage his choice Im not presuring him either way.



And I wont tell him about the bonds till he choises one or the other for sure



thanks

DM

 

[BarryG]

Well I am sure someone on here can give you the exact formula to figure it out but a ball park(including the parking lot) figure based on the current interest rate is about 7600. 00 on the original 4k at 3. 25% interest for 20 years.



A rule of thumb is divide the interest rate into 72 and that is how many years it will take to double. I think the current rate on ee is in the low 3% range so 4000 will double in 24 years.



You wont be able to get an exact number because the interest rate is not fixed on bonds any more they change twice yearly and are tied to some other treasury index if I recall correctly.



If you have excel on your computer here is a formula that may help you figure out how much you need to save each month to get where you want to be:

=pmt(3. 25%/12,20*12,0,40000) that formula is telling you 3. 25 % interest compounded monthly, 20 years times 12 months a year, not sure why the zero but that value is used in other computations like this but not needed in this particular one, 40000 is the amount you want to end up with. In this case it equals 118. 54 a month for 20 years at 3. 25% interest will equal 40000. 00. You can play with the interest rate amount just change the 3. 25 to whatever rate you want, or the years change the 20 to however many you want and you can change the 40000 to whatever amount you want as well. It just allows you to do a lot of what if scenarios if you want.



Another too consider is the tax advantage on bonds you can defer until cashed or it quits paying interest and you may be able to eliminate most if not all if used for college.

 

[DieselMinded]

Wowzers



That says it



Im not aiming @ 40,000 Im really not aiming at any thing but to suprize him with a big ol' stack of bonds when the time comes if there double face value than that is great



Thanks for schooling me



Whats better "I' or "EE"



AT PURCHASE

"I" are 100% face value

"EE" are 50% face value



I've been trying to by both equally



One is maket based and the other goes off inflation to my knowlage



Id like to buy just "EE" so it looks like he's really loaded when he first gets them..... because I can buy twice as many bonds



But I really dont want to put all his eggs in 1 basket



Should I cash them in after 5 years of gaining and use that money to buy bigger bonds or just let them sit for 20 or so years??



Thanks

DM

 

[B.G. Smith]

Might find some of your answers here. bg http://wwws.publicdebt.treas.gov/BC/SBCPrice

 

[AfterBurner]

Did you ever look at "college america's 529 savings plan"? it is offered from American Funds and their mutual funds, over the past 15 years have averaged about 11% growth rate.

 

[AfterBurner]

Oh YEa, and it's tax free if withdrawn for education

 

[BarryG]

I am by no means an investment specialist so dont take my word for squat. I dont know which is better I or EE, I know very little about US Savings bonds. I do know they are safe, secure and one of the lowest risk instruments out there. I dont think there would be any advantage to cashing them in when mature and buying larger bonds unless there is a signifcant rate increase and you would have to pay income taxes on the interest when you cashed them in to boot (unless it is for education) if I am thinking right so you would lose a chunk of principal. It might make sense if your willing to take additional risk to convert those to a different type of investment that provides a higher return but then you lose the safety factor and still have to pay the taxes. However the return could range from a loss to sky is the limit depending on how savvy an investor you are.



The site below has a ton of info on US Savings Bonds

http://www.savingsbonds.gov/

 

[Hohn]

Wow, I had a huge misconception about this thread just by reading the title. I was about to tell you that binding up your son is generally considered abuse and the state DFACS could get you for it.



jlh

 

[CTait]

The sad part is that even though the face value increases you have to figure in inflation and then they don't look so good. I can retire in 15 years. I sat down with an investment advisor a few months ago and we went over my current income and what I thought I would need when I retire. I don't make much money but he said that if inflation stays at what it has historically it will take 8,000 dollars a month to match what I currently make.