Savings bonds are issued by the US Dept. of Treasury. They have been a faithful tool for people to save some money for the future without worrying about security and they are the debt securities backed by the credit and full faith of the US government.
Savings bonds are the way to lend money to the U.S government. In turn, the government pays you back with an interest over a span of time. Saving bonds are considered the safest way to save or invest money. In this article, we’ll discuss different kinds of savings bonds and some of the interesting facts about savings bonds. Let’s jump in right away.
Types of Savings Bonds:
There are different series of savings bonds. To decide the best one for your goal, you need to know the two kinds of savings bonds. Savings bonds reach the face value based on the value at which they are sold and also the series of the bond. Here are the two main types of savings bonds
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Series EE Bonds
They are the most popular among the two types of savings bonds. They mature after 20 years and are priced at a fixed interest rate. As per the promise of the United States Government, the value of these bonds gets doubled in 20 years. Series EE bonds are exempt from state and local taxes. However, these bonds are subject to Federal Income tax.
Series | Bonds
Series I bonds mature after thirty years. Their pricing is based on the rate of inflation and current fixed interest rates. They are purchased at face value. So, if inflation is expected to hit a dip for the next 30 years, then it may not be a good idea to invest in Series I Bonds. It is certainly a good option if you think inflation rises high in the next 30 years.
Key Facts About Savings Bonds:
- They are guaranteed by the US government. The US treasury guarantees that the Series EE Savings bonds will double the value in 20 years. In case if they fail to double in 20 years, the government will provide a one-time adjustment to cover up the difference. So, if you invest $100 in the savings bonds, the bond will be worth $200 after 20 years.
- Series I bonds can be your best bet if you want to hold a savings bond for less than 20 years. If the inflation rises over 3.5% in the next 20 years, you can expect greater returns from Series I bonds compared to Series EE bonds.
- Savings bonds are different from high yield saving accounts. You will not be permitted access to cash for at least a year. EE Savings bonds must be held for the first year. Unlike the certificate of deposit, you are not allowed for early withdrawals.
- Series EE bonds are the no paper bonds. They are issued electronically. You can convert your old paper Series EE bonds to electronic bonds by applying to the program called Smart Exchange.
- The first order of Series EE savings bonds was placed by President Franklin D. Roosevelt. He had purchased a $500 worth savings bond during a radio broadcast in 1941.
- EE bonds are exempt from the state income tax and are subject to federal income tax. If the funds from savings bonds are used for higher education purposes, then you can also avail of an exemption from federal income tax. The savings bondholder does not need to pay federal income tax until he/she redeems the bond and earns interest.
- As per the recent information provided by the U.S. Department of the Treasury, savings bonds are owned by over 55 million Americans. They are the most preferred gifts for newborns as the value is expected to grow as the child grows.
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A savings bond is a popular investment option not only in the US but also in many other countries. It’s preferred by people who are interested in having a fixed income source. They are exempt from the state and local taxes and are open for investment to all resident citizens. They are super-convenient to invest in. Savings bonds are the safest investment option as there is a sovereign guarantee. We hope that our article has given you enough ideas about how savings bonds work. If you have any questions, please let us know via comments. Let us know if we have missed out on any interesting fact on savings bonds.
Krishna Murthy is the senior publisher at Finance XOD. He is not only the senior publisher but also the owner of Tricky Finance. Krishna Murthy was one of the brilliant students during his college days. He completed his education in MBA (Master of Business Administration), and he is currently managing the all workload for sharing the best banking information over the internet. The main purpose of starting Tricky Finance is to provide all the precious information related to businesses and the banks to his readers.