Market Maven

Wang, Penelope
March 2005
Money;Mar2005, Vol. 34 Issue 3, p61
This article provides investment advice by answering questions from readers. My wife and I have three-year-old twins. We don't like to invest, so we'd rather use any grandparent gifts to help pay off our mortgage early than have to manage college savings accounts. Is that a bad idea? Afraid so. Yes, prepaying your mortgage reduces your interest costs, but those savings may not be as great as you think, since rates are so low. The good news: College savings plans are easy to set up and can provide tax breaks. What's the difference between EE savings bonds and I bonds, and which is the better buy? Interest rates are calculated differently for EE bonds and I bonds. EE bonds are issued at 50% of face value and pay an interest rate of 90% of the six-month average of five-year Treasury yields, most recently 3.25%. The bond is also guaranteed to reach face value in 20 years. I bonds are sold at face value. Interest is calculated in two parts. One portion is a fixed rate of return, recently 1%, which remains steady for the life of the bond. The second is a semiannual inflation rate--the I in I bond--based on the rise in the consumer price index. So if you're making regular investments, put your money in whatever bond is yielding more at that time.


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