Should I cash in my kid’s savings bonds and put them in mutual funds?
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Question: Should I cash in my kid’s savings bonds and put them in mutual funds?
My in-laws buy my kids series EE savings bonds for birthdays, to be used for college. Should I cash them in and put them in mutual funds. My kids are 13 and 7. I hear that they have a terrible rate of return.
Q&A:
Answer by Jon H
I would say no, mutual funds are to volatile. However you could look at the corporate bonds market which is safer and more potential for upside.
Answer by amandadanielle84
If you cash them in they will not even be worth . The purpose of the bond is to forget about them for about 20 yrs. I would suggest taking them to the bank to see what they would be worth. They have bond calculators that they can enter the serial number to establish it’s worth. My grandparents did the same thing for me and I am now 25 and they are only worth about half still. I made the personal choice that I would just set them aside to use later in life. isn’t going to do much, considering my average college book cost about 0. Right now, mutual funds have about the same return as a bond. This is not the best time. Talk to your bank and see what they would suggest according to their current rates.
Answer by Lainey J
You can find information about the EE bonds on the government site
www.treasurydirect.gov.
There’s also information about Education planning there at
http://www.treasurydirect.gov/indiv/planning/plan_education.htm
You might also consider a 529 plan which has tax benefits related to education use. You can get lots of information about 529 plan at:
http://www.savingforcollege.com/
I agree that these have a low interest rate, as most things do right now, but taxes are deferred till you cash these in and there are special rules for using them for educational purposes. If you cash them in before 5 years, you have a 3 month interest penalty.
As for mutual funds, if you choose to do this, make sure they are NO-LOAD funds at a low cost discount broker (Vanguard, Schwab, Fidelity). Vanguard in particular is known for its low expenses. You want to be somewhat conservative so that the money is there when you need it, but you want it to grow.
It’s not a straightforward, quick decision and you should do some research. The sites I list are some good places to go. Oh, and once you decide on a course of action, ask your in-laws to just write a check and not bother with the EE bond thing. It’s too cumbersome.
Answer by David M
Stocks are very cheap right now. And in the 6-10 years before your kids go to college they may go up a lot. Good luck.
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