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Double your money -- in 20 years -- with EE bonds

When it comes to buying U.S. savings bonds you have two choices, the government's inflation-fighting I bond or the Series EE, a fixed-rate bond that Uncle Sam promises will double in value in 20 years. Based on sales, a majority of savers believe they'll do better with the I bond than with the guaranteed double that comes with the EE bond.

OK, waiting 20 years to double your investment may be enticing to only the most conservative investors. But how many do-it-yourself investors are still trying to repair the damage done to their portfolio when the technology bubble burst in 2000? Can they expect to double whatever their portfolio value was back then within the next 15 years? Or will trading decisions and market gyrations continue to limit their financial goals? Perhaps, for at least a portion of the portfolio, a guaranteed 100 percent return in 20 years isn't as dull as it seems.

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The EE savings bond has an interest-paying life of 30 years. The rate you get when you buy the bond stays with you until "original maturity," which is 20 years. After that, the Treasury can change the rate for the final 10 years.

An annualized return of 3.5 percent is needed to double your EE investment in 20 years. The current EE bond is paying just 3.2 percent, but if you buy now, don't worry about being shortchanged. The U.S. Treasury will make a one-time payment to your account in year 20 to bring it up to the promised level.

Dan Pederson, author of "Savings Bonds -- When to Hold, When to Fold, and Everything In-Between," calls it a carrot-and-stick scenario.

"They push people, trying to get them to hold on longer. If I get 3.5 percent every year for 20 years, it doesn't matter when I exit. But if I get 3.2 percent for 15 years, then I need to hold on another five years to get the bump. If you invested $10,000, you'd have an accrual of $320 a year instead of $350. So, in the 20th year, they're giving you $600, a 6-percent boost.

"Once you get close, it makes sense to stay with the bond. But if you're in year six and other investments are higher, it might make more sense to dump the EE."

As with the I bond, you must hold the EE for one year before cashing, and you'll pay a three-month interest penalty if you sell before five years.

Investors who like to do the math and don't mind juggling savings bonds might do better than those who stick with one particular issue. But if you want a guaranteed sum of money for a long-range goal such as college or an around-the-world trip at retirement you might find the EE to be a warm security blanket.

Next: "Buy and hold" is not "buy and forget."
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