I am ready to save the money and am thinking about putting the cash into an I-bond which currently earns 3.36% through April 2010. The benefit to having an I series savings bond is that for a small amount you can save the money and earn more interest than you would on a regular savings account and more than for a CD. There are drawbacks though but if you are looking at this for longer term savings this is a bonus.

According to the Treasury Direct website… “Interest accrues monthly and compounds semiannually. Bonds held less than five years are subject to a three-month interest penalty. Both series have an interest-bearing life of 30 years; the EE bond fixed rate applies to a bond’s 20-year original maturity.”

Another appeal to the savings is that unlike a high yield CD that has a minimum amount to save, you can purchase a variety of savings bonds in varying denominations and then cash in the ones that you want in small increments. Also, there are no local or state taxes incurred on these face value bonds.

The interest rates of different bonds haven’t always been appealing, but when the interest earned is greater than what you can earn on a cd or in a savings account – if you want a guaranteed return, and only have a small amount to invest, then take some of your savings and put it into a longer term savings vehicle.