Mad Money

Cramer: Don't put your money here!

Cramer's Playbook: Savings bond risks

(Click for video linked to a searchable transcript of this Mad Money segment)

Jim Cramer doesn't just tell you where he thinks you should invest. He tells you where you shouldn't invest, too.

And if you're putting money to work in this investment, the "Mad Money" host thinks you're making a big mistake.

If you're under 50, Jim Cramer doesn't think you have any business holding either Series EE US Savings Bonds or Series I US Savings Bonds in a retirement portfolio.

"Your investments must meaningfully grow your personal wealth so they can ultimately supplement your income later in life." And although savings bonds are safe, "they fail miserably at helping you achieve this important objective," Cramer said.

Here's why.

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"Series EE savings bonds are 30-year bonds that pay a fixed interest rate for the first 20 years, although in the last ten years the Treasury department can adjust the rate," Cramer explained.

"They currently yield about 0.1%. That's dramatically lower than you'd get even from a 1-year certificate of deposit issued by your bank. Heck, it's barely better than hiding your money in the mattress. In other words, these Series EE bonds are not making your money work for you."

Cramer says series I bonds aren't much better.

"The Series I is a 30-year combination fixed rate bond that's adjusted for inflation," Cramer added. "Right now, they pay you a 1.38% interest rate. Although higher than the Series EE, it's still not increasing your wealth in any meaningful way.

As you can see from the examples above, savings bonds don't generate any meaningful returns. In fact, if you're holding a mortgage, or student loans or some other type of loan, putting money into savings bonds decreases your wealth. That's because the interest you owe on your loans is greater than the interest you earn on your bonds.

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Although Jim Cramer recognizes that stocks present significantly more risk than savings bonds, unless you're within 15 years of retirement, he thinks they are, by far, the best place to put your money.

"You must put money to work in investments that generate a return," Cramer said. "And as far as I can tell, the best way to generate return is with a diversified portfolio made up of individual stocks of good companies."

Call Cramer: 1-800-743-CNBC

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