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BUY U.S. SAVINGS BONDS BEFORE MONDAY FOR BEST LONG-TERM DEAL

Investor alert: If you like U.S. Savings Bonds, hurry. The smart money says you'll get a better deal now than you will after the new rates are announced Monday.

This is the case regardless of which type of bond you like -- EE or I -- although EE bonds are probably the best long-term bet.

The interest paid by I bonds -- the inflation-indexed type -- comes in two parts. The fixed portion is set for the bond's 30-year life. The variable portion is adjusted every May and November to match inflation.

I bonds sold from last November through this month carry a 1 percent fixed rate and a 2.67 percent variable rate, for a total of 3.67 percent.

Because inflation has been rising, I-bonds bought from May 2 to the end of October are likely to pay about 4.2 percent, according to Daniel J. Pederson, president of The Savings Bond Informer, a consulting service for bond investors.

The rate would consist of a 1 percent fixed rate and 3.2 percent variable rate, he says.

Although that would be about half a percentage point more than you'd get on bonds purchased before May 2, Pederson thinks today's bonds are a safer bet.

"My concern is that if they have a combined rate that is a little bit more attractive than they would like, they might trim that fixed rate," he said.

"There is a virtually zero chance of them raising the fixed rate, but a 50 percent chance they would lower the fixed rate," he said. "That's why I would want to get in before May 2."

And investors who get in at today's 3.67 percent won't have to regret their move for long. Six months after you buy the bond, its total rate will adjust to the rate set May 2 -- assuming the fixed rate remains 1 percent.

Series EE bonds sold before May 2 will pay at a 3.25 percent annual rate for the first six months. Their rates will be adjusted every six months to equal 90 percent of the rate paid by five-year U.S. Treasury notes.

Historically, EE bonds tend to pay about two percentage points above the inflation rate. So they tend to be more generous than I bonds with a 1 percent fixed rate, which means they pay 1 percent over inflation.

Starting May 2, EE bonds will carry fixed rates for 20 years, with a new rate then set for their remaining 10 years. Pederson expects these bonds to pay about 4 percent.

Over the long run, this could well make them more generous than I bonds. Inflation tends to run at 2.2 percent to 2.5 percent over long periods. So, with a 1 percent fixed rate added, I bonds are likely to average 3.5 percent or less over time.

If you like floating rates, Pederson suggests you buy EE bonds before Monday. If you like fixed rates, buy EE bonds after Monday. If you want the highest rate, period, get EE bonds before Monday, as their floating feature will probably make them the most generous over the long run.

You can buy savings bonds at www.savingsbonds.gov.

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