As you may know, savings bonds have become the most popular investment in recent history. People enjoy investing in savings bonds because they are fully backed by the US government and are the safest method of investment. Be sure not to underestimate any information given by a stockbroker, but also be aware that they may not be telling the whole truth. Individuals often have the idea that they can collect their bonus in a short period. However, this is not true. Some brokers forget to leave out that there are penalties for cashing out too early. Never underestimate the savings bond system.
Everything you need to know about savings bonds
A savings bond works primarily like any other bond, stock, or investment. However, it has some variable aspects. A savings bond is viewed as a loan made to the United States government to pay for its borrowing needs. Savings bonds are very similar to treasury bills; they are a form of debt security presented by the Treasury Department. An excellent aspect of savings bonds is that they are the safest method of investment due to government involvement.
Another different aspect that savings bonds have is that the interest rate is a fixed percentage that is fixed for a certain period. Some investors see this as a downside factor. Interest rates on regular stocks and bonds rise and fall with the market. Skeptics may say it’s the government’s way of making more money than it needs; However, this is not true. The Treasury Department established these regulations to ensure that the investment cannot fluctuate, which should be seen as an advantage.
For example, a bond or regular stock can rise or fall with bubbles in the stock market. You can make a huge profit, but it also opens a window for you to lose money. With this in mind, the federal government wanted to prevent either situation from occurring; therefore, they created a fixed rate to have an equal agreement in both parts.
Different types of savings bonds
There are necessarily two types of savings bonds. Both savings bonds are purchased at face value only and must be held for at least two years. However, keep in mind that there are penalties if they are not maintained for at least five years. Once your five years are up, you can redeem your payment without having to worry about any penalties. Let’s find out the differences between the two types of savings bonds.
EE series
This type of savings bond is considered low risk and is often used for educational expenses, home purchase funds, retirement funds, or wedding expenses. Series EE bonds have a fixed interest rate that lasts for the entirety of the bond. After the first three months, the interest increases monthly. The interest rate is added to the face value of the bond, so you benefit in the long run.
Series I
Unlike the other type of savings bond, this one has a different interest rate. The interest rate is determined by two important factors: fixed rates and variable rates. These two factors are determined by the current rate of inflation in the economy. However, the fixed rate remains the same for the duration of the bond, but the variable rate is readjusted every six months.
Where to buy a savings bond
Some people make the mistake of going the extra mile and talking to multiple brokers. Also, beginning in 2012, the Treasury Department made it possible for individuals to purchase savings bonds online. You can research which program you prefer to buy your bonds through, although it is suggested to go through the Treasury website as it is the most secure.
The price range varies from a low rate of 25 dollars, up to thousands of dollars. The decision should be based solely on the amount you wish to invest and whether the face value of the bond is of interest to you.
Are you wondering about paper bonds? Well, since this generation has aroused great interest in the Internet, the government finds it better to keep up with the trends. As silly as this may sound, the federal government evolves its methods with popularity polls in different ways.
Also, paper bonds used to be bought for half their face value; however, the government saw this as a “coupon” and wanted to put the paper bonds to rest. As a result, you can currently only purchase personal savings bonds online.
However, there is another way to buy a savings bond. If the idea of doing it all yourself scares you, consider checking with your local bank. Since specific federal organizations regulate commercial banks, they are allowed to sell savings bonds. Using a commercial bank may be more beneficial because they can present you with a spreadsheet of economic options. They also have access to your accounts and can set the investment amount that is right for you. Loan officers and other bank employees can help you take the right steps to achieve your long-term financial goals.
exchanging your money
Now is the time to take the most exciting step of all: redeem your money. Not only is this the most intriguing step, but it can also be the most difficult. Cashing in your savings bonds can be done online or at your local commercial bank. Most people prefer to cash or deposit their checks at the bank.
Even though the check is sent from the government, there have been many fraudulent checks within the system that resemble the design of Treasury Department checks.
If you decide to redeem your money online, be sure to use the Treasury website. How do you decide how to use your bonus money? One rule to remember when investing is to keep the same approach with which you started the process. For example, if you choose to buy your savings bond online, then you cash it out online. Make sure you don’t collect before the five years are up, unless it’s an emergency. You don’t want to face any consequences, or have to pay any interest on your investment.
Things to consider before collecting your savings bond
Although charging is supposed to be simple, there are aspects to take note of. First, it is vital to keep track of any investment that is charged for tax purposes. You need to keep all records of any additional sources of income. Savings bonds are not taxable. Therefore, it is essential to have proof that the income was indeed a bonus so that you do not suffer any additional tax.
Another aspect to consider before buying a bond is whether it is authentic and eligible. Some websites try to “sell” savings bonds that already have a holder. This can make the situation very difficult. If you decide to cash in a bonus that is not yours, there is a high chance that you will face consequences. Wondering how to tell if a bonus is legit or not? Some people are dismissive of the idea of buying savings bonds online due to the amount of fraud in the industry. However, if you do your research properly and thoroughly, you should be able to find out the details of each bonus.
The last and most crucial aspect of purchasing a savings bond is the transaction information. You or your agent must obtain every piece of information that relates to your sale. All savings bond sales must come with a transaction number, just as if you had ordered an item online. If you’re not sure how to get detailed information about a bond, try visiting the Treasury’s website. It offers a guide on how to start your investment journey.
Regardless of the type of savings bond you decide to invest in, they are both low risk and considered the safest method of investment. A common problem today is that people are easily swayed into a decision. The best way to overcome this aspect is to do your research to determine which is the best play for you. Think of investing as a game of checkers; slow and strategic moves win the game. Research and discover all the details about the particular savings bonds that interest you.
If the idea of taking matters into your own hands scares you, then you can turn to your local bank for guidance. Never be afraid to ask for help, especially when it comes to your hard earned money. Try not to be too enthusiastic when embarking on an investment journey.
