Banks Make Money on the Spread, Why Shouldn’t Savings Bond Owners?

You may have never thought of it this way, but your savings bond holdings have a spread of interest rates. Savings bond rates have ranged from a low of 0% to a high of more than 8% over the last 24 months.

Banks make money by borrowing at low rates such as .05% on our savings accounts, and lending at higher rates like 6% or more on a car loan. The difference is the spread between the cost of what they borrow and the income from what they lend. If I can borrow $10 million dollars at 1% and lend it at 6% I will make $500,000 a year in interest. All my lending, of course, would need to be without default, and that is another story, but the concept is making money on the spread.

Wise savings bond owners can do the same. Suppose you are going to cash $10,000 of savings bonds a year for the next three years while holding others. Wouldn’t it make sense to cash the worst performers and hold the best? How do you know which is which? An analysis of your savings bonds investment will determine the exact rate for each bond and how long that rate will last. While the government data is useful, it does not address some of the analytical questions necessary to maximize your overall return. A savings bond statement (see example) provides the detail needed to maximize your savings bond investment. Whether you like banks or not, this is one strategy that can be borrowed from the big guys and applied to the way you manage your savings bonds.

The Power of an Idea

Savings bonds don’t move me. In fact, the following words come to mind: boring, slow and ancient. The same words can be used to describe a glacier and yet a glacier could also be touted as powerful, beautiful and massive. It is this other perspective, one filled with ideas, that separates my company from government information.

When I talk with people about their Series EE or Series I savings bonds we discuss data and ideas. The bits of data that comprise information are uninspiring unless one knows what to do with them. Anybody can recite data, given the proper source, but real value comes from linking data with ideas.

One of my clients has more than one million dollars in savings bonds. At a crucial time when rates were changing we had a conversation and I presented an idea. That idea resulted in $25,000 more in interest income a year for him over a ten-year period.  He is $250,000 richer. That was a powerful idea. I readily admit that not all my ideas have that kind of impact. However, my savings bond ideas have helped to shape the way bond owners think about managing their bonds and the way the government now helps bond owners.

If you need to talk about your savings bond investment, consider requesting a phone consultation. An affordable consultation might yield some ideas that change your perspective on the glacier.  Call 1-800-927-1901 to schedule an appointment.