by Charlotte Wood
(last updated February 21, 2009)
Many of you probably received a US savings bond at some point or another, either from a grandparent, your school, or elsewhere. What exactly is a savings bond though and how does it work? Why do you have to wait a certain amount of time before you can redeem your savings bond? What are the advantages? Savings bonds actually aren't that confusing and once you know more about them, you'll be able to better judge whether or not savings bonds are the right investment for you.
Savings bonds are like any other bonds in the basics; you buy one and wait for it to mature while it gains interest. The government uses the money you invest and pays you back with interest. When you purchase a savings bond, you buy it for less than the amount of the savings bond; the idea behind savings bonds is if you wait the full term (usually about 30 years), then the interest you earn will equal the dollar amount on the savings bond. The interest for bonds purchased through May 2005 is variable and follows the market, while bonds purchased after May 2005 operate on a fixed interest rate. The interest earned on US savings bonds is exempt from state and local taxes, but could be subject to other federal taxes.
Savings bonds are a more secure form of investment and don't take too much more monitoring past actually purchasing the bond. The trick to some of this however is to keep track of your bond while it matures. It's one of those things that's easy to see slip through the cracks and get lost, but if you do happen to lose track of your savings bond, you can fill out a form and mail it to the address printed and they can almost always track down your bond record and issue you a new record. Sometimes your name or address may be misprinted on the bond and if that's the case, you'll usually be okay if the error isn't significant enough to prevent you from actually cashing the bond. If that's the case however, fill out the correct form and mail it to the Federal Reserve.
You can buy savings bonds for yourself or for others and they can usually be purchased through certain financial institutions. Savings bonds are a great form of investment and one that is almost completely risk free. They're great for yourself or for gifts and if you have the patience can earn a significant amount of interest. If you want to invest some money, but aren't sure which to do and don't want to risk too much, then go for the US savings bond!
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