Money Fix: Have savings bonds lost their luster?

In the good old days, grandparents bought savings bonds for the new additions to the family or for graduation gifts. To keep that tradition alive they now have to go online, much to the dismay of some seniors.

Today's bonds are similar to yesteryear's. The difference is everything is done electronically, and there's no hard copy. To buy bonds, you open an account with Treasury Direct at treasury direct.gov. (The only way to get paper bonds is to buy them with your tax refund, using IRS form 8888, says Paul Bolster, professor of finance at Northeastern University in Boston.)

EE savings bonds pay a fixed rate of interest, and I bonds pay a rate that incorporates the rate of inflation. They come in increments from $25 to $10,000.

Savings bonds, however, have lost some luster. "Giving savings bonds as a gift has fallen out of favor," says Jeremy Vohwinkle, founder of Generation X Finance in Elkhart, Ind. It's no longer convenient; the recipient must also have an account. "It's not the same, giving a gift that only technically exists on the Internet and not an official bond note." And Interest rates have been at historic lows.

Savings bonds were popular for college savings. "A 529 college plan is more attractive. Earnings are tax-free when used for education," says Greg McBride, senior financial analyst with Bankrate.com.

Savings bonds can't be cashed in the first year and must be held a minimum of five years to avoid any interest forfeiture penalty.

Who are they ideal for? People who like safety -- they're backed by the U.S. government.