While the stock market provides individual investors with a way to participate in the success of a particular company, buying savings bonds allows those investors to profit from the success of their country. Buying savings bonds has long been seen as a patriotic activity, but it can be a profitable one as well.
Investors will also be glad to know that savings bonds are a safe way to invest, providing peace of mind as well as a good income. As with all such investments, the interest rates offered for savings bonds will vary according to market conditions and other factors. The rates paid on savings bonds adjust twice each year – in May and November, so would be investors should check rates at those times. The interest rates will vary according to the type of bond and market conditions, but the principal and interest are both guaranteed by the United States government.
Those interested in savings bonds also need to know that there are actually two distinct types of bonds – each with a different investment objective. Individuals who are worried that future inflation will erode their purchasing power over time may want to consider investing in so-called I-bonds, or inflation indexed savings bonds. These bonds are designed to provide a rate of return over and above the rate of inflation. . This helps to preserve purchasing power during times of high inflation and provides peace of mind to investors.
Series EE savings bonds, on the other hand, provide a rate of interest equal to 90% of the average yield on five year treasury securities for the previous six month period. In essence this means that the rate of return on Series EE bonds is determined by the action of the government bond market. Since this market is widely traded it makes a good benchmark for bonds, and provides investors with a good rate of return. The rate on inflation indexed bonds is calculated in a similar manner, except that the formula used adds a calculation based on inflation as it is measured by the widely used consumer price index.
No matter which types of bonds are chosen, one of the chief advantages of these types of investments is the fact that they can be purchased in very small increments. This makes savings bonds the perfect savings vehicle for new investors, including children. In fact savings bonds are so popular that they are often given as gifts to children and grandchildren on birthdays, holidays and other special occasions. This type of gift helps kids understand the value of investing, while helping parents and grandchildren save for their children’s future. And with denominations starting as low as $50 savings bonds are easy to buy, easy to keep and easy to give. It is no wonder this solid as a rock investment vehicle has remained so popular through bull markets and bear markets.
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