The Malachi Group

Where do I invest education money for children and grandchildren?

With the state of the economy and stock market investments that have been racked, where do we invest education money for our children and grandchildren?
Now that the stock market has broken through support that was established in November 2008, we again wonder when will recovery occur for our stock market investments. Many of us are concerned about money we have already invested or are going to invest for children and grandchildren. We could buy Treasury Bills or Bonds but the rates are so low they will not keep up with inflation.
Of course, our country is taking on an unbelievable amount of debt so now we are even questioning our country’s ability to pay interest on America’s debt. Yet, America still has the highest credit rating available, as of today, and USA taxpayers will continue to funnel money to the Treasury Dept. every year. Therefore, we know there will be revenue flow at the Treasury Dept.
If you are to the point you will not invest more education money in the stock market you can look at alternatives such as CD’s or money market accounts. Maybe even Corporate or Municipal Bonds. They both pay higher interest rates than CD’s and money market accounts. Yet there is some risk attached to them. Corporations have to retain viable status to be able to pay you interest every six months and the principal at maturity. Municipal Bonds (Muni’s) pay tax-free interest. Some may be insured, but the insurer’s solvency is in question today. Uninsured Muni’s are dependent upon the municipality to raise tax revenue to pay the interest every six months and the principal at maturity. CD’s are FDIC insured up to $250,000 when purchased from an FDIC insured institution.
Here is an option to think about for getting a decent return without putting the money in the stock market or other alternatives. It is time to take a hard look at I Bonds. Most of us know about EE Bonds, but I Bonds work differently. To help your understanding before you go to the Treasury website here is some information about I Bonds.

I Bonds are sold in denominations of $25 or more. You can purchase up to a limit of $5,000 per Social Security number. I Bonds pay a fixed rate and a variable semi-annual inflation rated. Interest can compound for 30 years. I Bonds can be redeemed after 12 months. If the I Bonds are held less than five years, there is a 3-month interest penalty. As indicated on the Treasury Direct I Bond internet page, the interest rate on I Bonds is 5.64% through April 20, 2009. At that time, the semi-annual interest rate adjustment will be made.
Several other pertinent pieces of information include that Minors may hold I Bonds in their names. You can ‘gift’ I Bonds to recipients.
Here is perhaps the most important feature of I Bonds and EE Bonds – the savings bond education tax exclusion permits qualified taxpayers to exclude from their gross income all or part of the interest paid upon the redemption or eligible EE and I Bonds issued after 1989, when the bond owner pays qualified higher education expenses at an eligible institution. There are other qualifying requirements you will need to know before you buy I Bonds. Go directly to the link provided below.
I Bonds may be an investment worth looking at during these turbulent times.