Buying Savings Bonds

by Matthew Perry
(last updated February 21, 2009)

Savings bonds remind me of my dad. He bought a number of them for my college fund when I was born; I think his planning paid off. By the time I was ready to strike off on my own, the bonds that he'd bought for five hundred dollars had matured, and he could cash them in for a thousand dollars each. Double the money without doing any work? Can that be right?

Well, yes, to a point. Federal bonds are sold by the national treasury to raise money for the government. You give them a certain amount now—let's say fifty dollars—and they promise to give that back to you and more in the future—let's say around a hundred dollars—after a set amount of time, when your bond 'matures'. Essentially, you're loaning your money to the government, and in return, they pay you interest, but with a twist. Instead of giving you a small payment every month, the government keeps tract of the total amount owed on your bond and pays it all when you cash in—and as a bonus, the money from cashing in government savings bonds is exempt from some taxes.

However, you pay for the security of government backing (if the day comes when these bonds are worthless, you'll probably have graver troubles) with low interest rates. In some cases, savings bonds earn barely enough money to keep up with inflation, and if you want to cash in your bonds before they mature, you forfeit the growth for the previous three months.

There are several ways to buy bonds. You can go the traditional route and buy them in a bank or credit union, if you like or you can take advantage of technology and buy them through TreasuryDirect.gov, a website run by the US Treasury. All you need to do is set up an account on the site, which is easy. You'll need your social security number, your driver's license number (or state ID) and its expiration date, the routing number and account number for the checking or savings account you want to link with your new account, and an e-mail address.

Author Bio

Matthew Perry

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