HOWEVER, I am going to suggest you a better alternative, DON’T USE ONE.

Are you serious?
3% a year?
Don’t you waste and spend more than 5-10% on your regular expenses just by not shopping smart and buying in bulk?
Do you pay sales taxes when you purchase stuff?
Do you pay tips when you eat out?
Do you remember “late fees” for not paying bills on time?
(hopefully none of this applies to you, but as you can see, how easy it is to NOT save money, that you can save money by just being careful and frugal).

What’s wrong with using a savings account?
1. They don’t pay you enough to matter. If you’re willing to settle for 3 cents on a dollar for a year, you can certainly save 5 cents to 10 cents by spending some time shopping for a better deal on groceries, necessities, clothing, electronics and whatever you buy.

2. You risk being penalized if you have to withdraw early, why bother? It’s YOUR money, what if you need it in an emergency? You not only lose the interest, you pay a penalty!

3. By accepting a crap rate, you’re perpetuating our overlending economy. Why are so many companies asking for bailout now? Because they were lent money that wasn’t supposed to be, low interest rates. You should keep your money until something bigger comes up (such as 10%, and it won’t happen, so don’t use savings accounts).

SO WHAT CAN YOU DO?
1. Get a FREE checking account, no fees, no interest, no penalties. Put in LITERALLY EVERY PENNY you don’t spend.

2. Watch out for deals, buddy with friends and neighbors to shop in bulk and save together. Cut coupons, spend a few hours a week can save you a few hundred a month! (I know it because I live it)

3. Are you sure you’re not going to touch this money for a long time? If so, buy some silver coins, I’ve done it for 4 years and it’s appreciated greatly every year, at least 20% (even when today the market price is low, I can sell my physical coins for as much as I paid for).

4. Keep thinking, stay alert, always demand better. You are a consumer and banks, businesses prey on your ignorance and laziness. You KNOW you can save money by being smart, being careful, why let the hold your money for ONE WHOLE YEAR and only give you 3%? You deserve better, do yourself a favor.

Ask me any specific questions, I’ve saved people hundreds a year, I’m a personal savings advisor and I only present facts and experience. You are free to disagree, but it can’t hurt to hear both sides of the story.

or

You can invent a product and get it to market for about $20,000. The fastest way to get rich is to invent a product that is highly desireable in the marketplace and put it on qvc home shopping network to see if its marketable, and hope it takes off.

The first poster is correct in that higher rates would make borrowing costs for corporations higher, thus affecting their bottom line which in turn would cause stock valuations to drop. In addition, consumers would spend less as the majority of American consumers spend out of debt and not savings and income. For example, according the the BLS (Bureau of Labor Statistics), the average American is making the same amount of money today as they did in 1972 based on inflation adjusted wages and costs; 70% of GDP is consumer spending and if real wages (inflation adjusted) have been stagnant or falling for the last 30 years, then how have American’s been spending? The savings rate in the U.S. is negative. They way they’ve been spending is via debt, ie, credit cards, equity withdrawals from their homes, etc. As rates go up, borrowing costs are going to increase thus prompting higher debt service payments. As consumers can not afford high debt service payments, spending would be curtailed thus, less sales revenue to companies, thus driving down their bottomline and driving down stock prices.

Don’t listen to Frank. The fed right now is in a pickle of a situation. Inflation is still a primary concern, that’s why the BoE and ECB have raised rates (as well as the majority of world Central Banks). But for the U.S., it’s worse. When the stock bubble popped in 2000, to prevent an economic contraction, the Fed lowered interest rates to 1%. They succeeded, but instead of money flowing back into stocks, in flowed into real estate. That’s why real estate took off in the last 5 years. But, at the same time, the dollar went into freefall. As the fed began raising rates again, the dollar stabilized. But, that started to put pressure on the real estate market as raising rates made it more expensive to purchase real estate. And the real estate bubble is what propped up the U.S. economy in the last 5-6 years.

But, the world is losing confidence in the dollar as the U.S. runs huge current, budget and trade deficits. Many countries are diversifying out of dollars, that’s what the dollar headed south again in the past several months. So, what is the fed to do? If they raise rates to prop up the dollar, they’ll kill the housing market. If they lower rates to save the housing market, that would be the death knell for the dollar and we’d, in short order, experience a dollar collapse. In my opinion, a dollar crisis would be vastly more devastating then a real estate collapse. If the fed moved to prop up the dollar during a dollar crisis, it would mean interest rate hikes of 4, 5 or 6 percent or more, not just 25 basis points. Remember, in the 70’s to prop up the dollar, Volker raised rates to near 20%, and the U.S. was in much better shape then than it is now. A dollar crisis now could very realistically prompt the fed to raise rates well above 20% to stave off a severe dollar rout.

In a nutshell, higher rates translates to lower common stock prices.

If the savings bonds are small amounts (like $25 or $50), and the total is nowhere near $2,000 or $3,000, there’s nothing wrong with just letting the savings bonds accrue interest. While the interest rates aren’t high, they are reliable (because the U.S. government stands behind the bonds). In 15 years time, they’ll probably compound into a nontrivial value. Remember the power of compounding (see the webpage listed below). Maybe the bonds can help the kids cover their college expenses.