Saving Bonds

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How do Savings Bonds Work? The Most Popular Investment Instrument

In the United States, the value of savings bonds is secured by the government and this is why they are the most popular savings solutions in the country. Savings bonds fall in two general categories: EE savings bonds and I savings bonds. The former type of savings bonds was first released on the market at the beginning of 1980s. These bonds are printed on paper, and they are still more popular among the rank-and-file people than the I savings bonds. These are a new generation electronic securities that can be purchased and traded in an electronic form only.

How to Buy Savings Bonds?

While savings bonds can be purchased from virtually any financial institution, be it a bank, credit union, or any other financial services provider, as well as at the treasury website of the US government, I savings bonds could be purchased only at their face value. You will pay fifty dollars for a fifty dollar bond, while EE savings bonds could be bought at half their face value. In addition, if you have a TrasuryDirect account, you can purchase I bonds online, but if you don't have one, you can buy them by payroll deduction.

Because EE savings bonds are bought at half their nominal value, they are considered long-term savings instruments, while I savings bonds are regarded as short-term investment vehicles, designed to protect your money from inflation as long as you own them. It is also noteworthy to say that each person who wishes to invest in savings bonds is allowed to purchase bonds worth up to $ 30,000 a year, while their face value ranges from $25 to S10 000 per bond. The highest face value of an I bond is $5,000. It is good to know that stolen or destroyed savings bonds can be replaced as long as they have not been cashed. If you have been robbed of your savings bonds, you can still have them replaced even if they have been cashed, provided that you prove that they have been cashed by the wrong person.

Interest Rates and Redemption Rules

As regards the interest rates and redemption rules that apply to savings bonds, those bought after 2005 earn a fixed rate of return. The returnibility of bonds bought before 2005 may vary. Another good thing about savings bonds, purchased after 2005, is that they guarantee the value of your investment for as long as twenty years, even if the interest rates hit a rock bottom. However, if you wish to redeem your bonds within the first five years of purchase, you are very likely to lose the interest for the three most recent months. But if you redeem them after the first five years, you are not liable to any penalty charges. The redemption of I bonds within the first five years of purchase is also penalized, but they tend to mature faster, depending on the current state of the economy.