Q. My parents gave me $10,000 recently and I want to do something safe with it for my daughter who is 15. I was checking into 'I' bonds. My husband suggested a CD--a local bank has advertised 3.8% for a year. Do you have a recommendation? Am trying to research the pros & cons--want to make a wise choice for her future.
---M.S., by e-mail from Dallas
A. Unless you intend to hold onto the I Savings Bonds for 5 years, when your daughter will be 20, you need to consider the impact of the penalty for redeeming before the security has been held for 5 years. If you redeem an I Savings Bond before 5 years you pay a penalty equal to the 3 most recent months of interest. The longer you hold the security before redeeming, the smaller the burden.
This is NOT a reason to avoid I Savings Bonds. It's just something to consider.
As a practical matter, the I Savings Bond will provide a tax deferred income. Furthermore, the current 3.8 percent yield is very good. According to
http://www.banxquote.com/, the national average yield on 5 year CDs was recently 3.76 percent. And if inflation rises, so will your return.
Learn more about I Savings Bonds
