Q: My parents gave me $10,000 recently. I want to do something safe with it for my daughter, who is 15. I was checking into I Savings Bonds...

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Q: My parents gave me $10,000 recently. I want to do something safe with it for my daughter, who is 15. I was checking into I Savings Bonds. My husband suggested a CD — a local bank has advertised 3.8 percent for a year. Do you have a recommendation? I want to make a wise choice for her future.

— M.S., Dallas

A: Unless you intend to hold onto the I Savings Bonds for five years, when your daughter will be 20, you need to consider the impact of the penalty for redeeming before it has been held for five years.

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If you redeem an I Savings Bond before five years, you pay a penalty equal to the three most recent months of interest. The longer you hold the security before redeeming, the smaller the burden. This is not a reason to avoid I Savings Bonds. It’s just something to consider. CDs have similar, but higher, penalties.

As a practical matter, the I Savings Bond will provide tax-deferred income. Furthermore, the current 3.8 percent yield is very good. According to www.banxquote.com, the national average yield on five-year CDs was recently 3.76 percent. And if inflation rises, so will your return.

You can learn more about I Savings Bonds online at www.savingsbonds.gov/indiv/products/ibonds_glance.htm

Q: This is in response to your recent column (July 3) about variable annuities. I have a tax-deferred annuity that is waiting for me to reach age 59 ½. I have not made contributions since I retired. I won’t need the account as a source of monthly income.

Your column tells why the variable annuity is not a good investment to make now. But what should I do with my existing contract?

Should I move all or some of it now, or wait three years until age 59 ½? Where can I move the money without incurring either the federal 10 percent early-withdrawal penalty or a tax hit?

— J.L., Akron, Ohio

A: The best way to avoid any tax or penalty hit is to do what’s called a “1035 exchange” to another annuity contract. Sales agents use this tool regularly to move money from one expensive contract to another, generating a fresh commission for themselves and a new penalty period for the customer.

Prudent investors can, and should, use this tool to move money from an expensive contract to one that has significantly lower costs and a minimal penalty period.

The move won’t lower the tax rate on money when it is later withdrawn, but it will allow you to grow your money less impeded by high expenses.

Vanguard, for instance, has a variable annuity product with insurance expenses of only 0.37 percent. That’s less than one-fourth of what you pay for most variable annuity contracts.

It is also paired with Vanguard’s low-cost mutual funds. As a consequence, you can probably manage your money, tax-deferred, for a total cost of about 0.60 percent, depending on your investment choices.

In a rank-ordered listing of 28,000 variable annuity sub-accounts, for instance, I found the highest insurance expense to be 2.25 percent.

The median insurance expense (half higher, half lower) was 1.40 percent. And the least expensive 5 percent of all sub-accounts had insurance expenses of 0.80 percent, or less. Only 1 percent of all contracts have insurance expenses of 0.50 percent or less.

If you can move without a penalty, a 1035 exchange is probably the best choice.

Questions about personal finance and investments may be sent to Scott Burns at The Dallas Morning News, P.O. Box 655237, Dallas, TX 75265; by fax at 214-977-8776; or by e-mail at scott@scottburns.com. Questions of general interest will be answered in future columns.