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Are U.S. Savings Bonds Still Relevant?

Chances are, even if you have never received a savings bond in your name or had anything to do with them, you probably have some idea of what a U.S. savings bond is. If not, it's okay; they seem to be dwindling in popularity as of late, as fewer people are educated every day on the benefits of a U.S. Savings Bond. If you aren't really sure what a U.S. savings bond is and how they may or may not have a place in your life, read on for more information.

What Exactly Is A US Savings Bond?
As a long term investment vehicle, savings bonds used to be very popular when interest rates were much higher than today. Today, its stories of penny stocks that turned hundreds into thousands that makes the headlines of major newspapers. Sadly, they do their readership a disfavor by ignoring the value of owning savings bonds. While there many be different types of savings bonds, a US Savings Bond is guaranteed by the United States government. Unless the US government goes bankrupt (in which case, you would have a whole lot more to worry about than the interest rate), your money is safe. A savings bond acts as a loan to the government for a certain percentage, paid as interest for a certain period of time. When the bond expires, its referred to as the maturity date.

Where Can US Savings Bonds Be Obtained?
A great place to buy a savings bond is at your local bank. The most popular type of US Savings Bond are the Series EE which can be purchased at half the face value. So a $100 bond would cost $50. The minimum purchase is $25 while the maximum is $30 000 (although, you can purchase an additional $30 000 electronically). These types of bonds earn market based rates which change every 6 months. As such, there is no way to predict when it will reach its face value. These bonds much also be held for a minimum 12 months. The other type of US Savings Bonds are the I Bonds which are an accrual type investment. Simply put, interest is added to the bond on a monthly basis. The rate of interest is determined each May and November and is based on the Consumer Price Index.

How Long Do I Have To Wait Before I Can Cash in My US Savings Bond?
Depending on the type of bond you purchased, the maturity date will differ. Knowing your savings bond before you buy is always a smart move. Since you purchase your I Bond at face value and receive interest annually, you can cash in any time after the 12 month period after you initially bought. However, its important to remember that if you cash in your I Bond within the first 5 years, there is a 3 month interest penalty. This is to encourage long term savings. As for the Series EE Bonds, if you hold til maturity, you do not get interest on your investment after that period. So remembering your maturity date is key. You can cash in your Series EE Bonds any time after the first 12 months after you bought them.

Savings bonds are not the type of thing that everyone can get into. Some people want the type of investment that they can get a quick return on, and that is okay--just not good for U.S. savings bonds. However, this is a great way to get your feet wet as far as making investments go, and put some money away for a rainy day-- a rainy day in the next several years, that is.

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