Are the new War Bonds a good deal?
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October 30, 2001: 11:03 a.m. ET
Is a patriotic investment also a good one?
MONEY columnist Walter Updegrave
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NEW YORK (CNNmoney) - I heard the federal government is issuing War Bonds to fund anti-terrorism efforts and to repair Sept. 11 damage. I want to be patriotic, but I also want to make a good investment? Do these serve both purposes?
Last week, both the House of Representatives and the Senate passed bills authorizing a new crop of War Bonds, the first batch since World War II. But before you get your checkbook, understand that there are no "War Bonds" for you, me or anyone else to buy. The final legislation still has to be signed by President Bush, and after that the U.S. Treasury must actually issue the bonds. So it will probably be at least several months before they are available.
At this point, we don't know what form these bonds will take. The legislation authorizes the U.S. Treasury to establish a special category of U.S. savings bonds. That would probably mean that War Bonds will be offered as new versions of Series EE or I savings bonds, which are available in denominations as low as $50.
When the time comes, the decision to buy will depend on your motivation. If you're looking at these bonds as a real investment, then you should compare them to comparable bonds.
At the moment, Series EE savings bonds pay 4.5 percent interest, and I bonds pay 5.92 percent, a rate that reflects an underlying return of 3 percent plus an adjustment for inflation. Rates on both these bonds are adjusted every six months, and in fact the next adjustment is Thursday, Nov. 1. (You can get the most recent rates by clicking here.
Even if the rates are about the same, however, I wouldn't overdo it with the War Bonds. If nothing else, the market meltdown has demonstrated the importance of diversifying among a variety of different investments. So I would also want to own some regular Treasury bonds or bond funds and maybe even some corporate bonds or bond funds (see Money 100: Bond funds). If you're in this year's 27.5 percent tax bracket or higher, you should also consider tax-free municipal bonds or bond funds. (For information on current yields on different types of bonds, click here.
And there's this to consider: It's entirely possible that the Treasury could set a lower rate for War Bonds. If that turns out to be the case, you'll have to decide for yourself how to balance sub-par returns with your patriotic urges.
As the first War Bonds in 50 years, buying one would be like owning a little piece of history. I would also consider buying a token amount of War Bonds as a way of explaining to my nine-year-old son Henry what the U.S. is doing to recover from the attacks and to prevent future acts of terrorism. But if your primary goal is to be patriotic, there's no reason to wait: You can already buy regular U.S. Savings bonds -- or buy Treasury bonds directly from the U.S. Treasury for that matter -- and the money you invest will go into government coffers from which funds for rebuilding and anti-terrorism funds will be drawn.
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