Combining Uncle Sam with a little patience can pay off for many investors.
As investments go, savings bonds may not appear as sexy as mutual funds or penny stocks. But with today’s volatile stock market, many investors see them as safe, secure investments.
Savings Bond Benefits
Savings bonds, which are sold by the U.S. Treasury, offer several advantages:
- They are a “safe” investment, meaning the principal amount paid for the investment isn’t at risk of being lost.
- Savings bonds are backed by the U.S. government.
- They often offer a higher interest rate than savings accounts.
- There can be tax benefits: Qualified owners of EE bonds may have no taxes on the bond’s earnings if the money is used to pay for certain higher education expenses.
- Investors can buy the bonds direct from the U.S. government via the Treasury Department’s Web site, TreasuryDirect. Some types of bonds are available through banks, credit unions or brokers.
Savings bond types
There are different types of treasury securities currently available:
- Treasury Bills – short-term government securities with maturities ranging from a few days to 26 weeks. Bills are sold at a discount from their face value.
- Treasury Notes - government securities that are issued with maturities of 2, 5, and 10 years and pay interest every six months.
- Treasury Bonds - pay interest every six months.
- Treasury Inflation-Protected Securities (TIPS) – marketable securities whose principal is adjusted by changes in the Consumer Price Index.
- I Savings Bonds – a low-risk savings product that earns interest while protecting the investor from inflation. They are sold at face value.
- EE/E Savings Bonds are a secure savings product that pay interest based on current market rates for up to 30 years. Electronic EE Savings Bonds are sold at face value in TreasuryDirect. Paper EE Savings Bonds are sold at 1/2 face value.
EE and I series bonds may be purchased from banks and some credit unions, or through an employer-sponsored plan.
Savings bonds aren't the best investment for everyone. The same amount of money invested in the stock market could bring about a higher return over many years, and would be more attractive to younger people with time to ride out the stock market’s ups and downs.
Investors should also consider their risk tolerance. Some financial planners call it the "sleep factor" - if a client can't sleep at night with his or her money in a particular investment, that investor needs to go with something safer.
In addition, savings bonds can balance a portfolio against riskier investments.
Investors can find out what their bonds are worth and when they mature by checking TreasuryDirect’s calculators
Investors can manage their accounts online at TreasuryDirect. Also, the Web site offers a free software download that investors can use to inventory their savings bonds. Choose the "Savings Bond Wizard" on the Web site.
Once you've decided to cash in your bonds, most banks and some credit unions will do it for you. Bonds may also be redeemed directly from the Treasury.
