If you get nervous about investing due to risk factors, governments savings bond might be for yo. A saving bond is a government security that has a fixed interest rate and matures after a specified period of time. Many people love investing in saving bonds because they are not subject to local or state taxation rules. They are also easily transferrable and non-negotiable.
Savings bonds are issued by the government when they need to raise funds from the public in order to fund different capital projects and other operations. The beauty of this investment option is that it has zero risk as the government must pay the investors regardless of the status of the economy.
In actuality, saving bonds are the government’s way of getting loans from the public, and they promise to pay them back at a specified date in the future. In this review, we evaluate savings bonds in order to understand whether they are worth it in today’s market or not. Read everything below to decide if a government savings bond fits your needs.
What Are The Types Of Savings Bonds?
There are usually two main types of savings bonds that you can invest in; The Series EE U.S saving bond, which is a replacement of the Series E bond of 1980. This bond is usually sold at face value and it’s usually worth the full value at redemption. The other type of bond is the Series I US saving bond that was introduced in 1998. It is also sold at face blue but its interest rate is usually variable. If there is inflation the interest rate on the bond will go up, but during periods of deflation, the bond doesn’t go down.
Are Savings Bonds Worth The Investment?
Saving bonds are usually a simple way for Americans to buy U.S government debt. Most of them cost between $50 and $10,000. Currently, they are considered the safest investment options that you can make, as they are fully backed by the government, which means that you cannot lose your money. They are however a little bit confusing for the average American, so let’s break it down:
The face value of the bond is usually what it is worth at the time of its maturity. You can buy a bond for less than value, or usually half of the face value. For example, if a series EE bond’s face value is $50, you can buy it now at $25. This type of bond shall reach its face value after 20 years, and it shall stop earning you any interest after 30 years.
You must, however, have owned the above type of bond for at least one year before you can redeem it, and you must also have been owned at least 5 years before you are able to redeem it without incurring a penalty. The penalties are usually small though, and if you want to get the full worth of the bond, you must ensure to hold it for the full 5 years.
One confusing aspect of saving bonds is trying to figure out how much they are worth before they hit their full face value. Luckily, we’ve got you covered, and we shall show you how you can calculate your saving bond before it matures.
How Do You Calculate The Value Of Your Saving Bonds?
In order to calculate your savings bond, you must have the following information;
- The type of bond
- The denomination of the bond
- The bond’s serial number
- The bond’s issue date
Once you have this information, you can then use the savings bond calculator to find out how much the bond is worth right now. The government has provided a savings bond calculator at Treasurydirect.gov. This is a government site for the calculation of government-issued bonds. Most people love to use this site due to its affiliation with the government.
The above link will direct you to the calculator, and this will help you find out the following information;
- How much the bond is worth right now?
- How much the bond shall be worth in the future?
- How you can build an inventory of bonds – this means having more than one at a time.
- How you can save the inventory
- How you can find the interest for reporting to the IRS from your bonds.
How To Get The Most Out Of Your Savings Bonds
One of the limitations of saving bonds is that they have a very low-interest rate. According to the US Treasury site, the EE bonds that were sold in the periods between May 2014 – October 2014 shall earn an interest that is half of a percent, which is way too low. One of the weirdest rules about savings bonds however is that the Treasury has made a promise to double all of your investments in the EE bonds in less than 20 years. This means that, if you buy bonds, it is advisable that you plan to hold them for the next 20 years.
Are Savings Bonds The Right Decision?
Saving bonds are without a doubt the safest investment option on the market today. The question here is whether they are worth it or not? We truly cannot give the correct answer here, because the length of time you need to wait for a bond to mature might be too long for some people. For those people, a savings bond just might not provide the solution they are looking for.
For those that have the freedom and time to let their money sit somewhere and accrue interest for the next 20 years, savings bonds are a worthy investment. The decision all comes down to your lifestyle and what your financial goals are. Just do your research and you will definitely come up with a unique answer right for you.