Savings bonds offer safety and simplicity, but not favorable after-tax rates of return unless they are held to maturity or for 30 years. This requires a comparison with 5-year Treasury bonds and municipal bonds. If your income tax rate reaches 40 percent or higher, savings bonds do become competitive when compared with Treasury issues. Because of their safety, liquidity, and tax deferral, savings bonds are often considered by the most conservative of investors. In general, other similar investments, such as Treasury securities and municipal bonds, will provide more return for approximately the same degree of risk. Effective January 1, 1990, savings bonds purchased by an individual over age 21 and used to fund qualified educational expenses can be redeemed tax-free with certain restrictions. The restrictions are: The total proceeds must be used to finance tuition and fees only; room and board, travel, books, or other expenses do not qualify. In the year of redemption, the bond owner must have an adjusted gross income (AGI) of less than $60,000 indexed to inflation from 1990. This requires filing a joint return. Married couples who file separately do not qualify. Single taxpayers must have an AGI of less than $30,000 indexed for inflation. On the surface these bonds seem to have significant advantages. However, there are concerns: If the children do not go to college, the proceeds will not be tax-free. A person's AGI at redemption is impossible to predict. If higher than the indexed amount, the tax-free status will be lost. The cost of education has been increasing at a much higher pace than inflation. An investment in Series EE bonds, when compared with such alternatives as mutual funds or equities, has historically not been a good choice. The conclusion is that Series EE bonds for college funding are probably not worth the investment unless there is a certainty that a tax-free status can be maintained, the parent or grandparent requires absolute safety, and he or she is not concerned about the potential ravages of lost value stemming from inflation.