In their search for a hip investment for the sophisticated 1990s, some advisers are putting aside their computers and their calculators and recommending U.S. savings bonds.
Why such an old plain-vanilla idea when so many newer and more exotic flavors are available?Well, for one thing, recent changes in the tax laws that drastically altered many money management strategies left savings bonds unscathed.
They are no way to get rich fast, and they never will be. But they are versatile, practical and safe.
Perhaps best of all, they offer some measure of protection against just about any foreseeable financial misfortune, whether the economy gets too hot or too cold.
"Whether saving for college or retirement, U.S. government Series EE savings bonds offer an attractive `tax-sheltered' investment for people at any income level," says William Brennan, editor of the newsletter Financial Planning Reporter published by the accounting firm of Ernst & Whinney.
"Their variable interest rate, with a 6 percent floor, provides a double-edged sword with which to fight either inflation or deflation."
Furthermore, say analysts at Standard & Poor's Corp. in the firm's weekly publication The Outlook, "just now, with interest rates drifting lower, Series EE savings bonds have special appeal because they lock in yields for six months at a stretch."
The savings bond program, revamped in 1982, has operated for decades on a system similar to the one adopted for modern vehicles known as zero-coupon bonds.
They are sold, in denominations as small as $50 and as large as $10,000, for half their face value. They provide no current cash distributions but instead appreciate gradually in value as interest on them accumulates and compounds.
Provided that you hold them for at least five years, the government guarantees an annual interest rate of 6 percent, or 85 percent of the yield available on five-year Treasury securities, whichever is higher.
The variable rate, recalculated each May 1 and Nov. 1, currently stands at 7.81 percent through Oct. 31, Brennan notes.
Savings bonds' "tax shelter" is twofold. As the interest on them builds up, you can choose not to pay any federal income tax on the interest until you cash in a bond.
In addition, savings bond interest, like that of other securities of the federal government, is exempt from state and local income taxes.
With bonds bought any time starting Jan. 1 of this year, there is an extra kicker. You can avoid any tax at all if you use the proceeds from them to pay for education expenses such as college tuition and your adjusted gross income on your tax return is $60,000 or less for a married couple, $40,000 or less for single filers.
Savings bonds bought before this year don't qualify for this special treatment. However, suggests Standard & Poor's, if you are holding older bonds in a college savings program, you might consider cashing them in at some point and reinvesting the money in new ones that are eligible for the tuition tax break.
Savings bonds can be bought, without commissions or fees of any kind, from banks, savings institutions, or through payroll savings plans offered by many employers.
The government promises to replace your bonds if they are stolen, lost or destroyed.
To be on the safe side, advisers say, make a list of the bonds you own, their face amounts, serial numbers and purchase dates, and keep the list separate from where the bonds are stored.