While stocks and mutual funds certainly have their advantages, there is something to be said for safety and security. Those investors looking for a safe haven from today’s financial storm may want to take a look at savings bonds. Both Series EE and Series I bonds provide rock solid safety coupled with a competitive rate of return. And investors who purchase savings bonds can rest assured they will get 100% of their money back when the bond matures, certainly no small consideration in today’s volatile market environment.
Which Type of Bond?
Investors with an interest in savings bonds will first need to determine which type of bond best meets their needs. The United States Treasury provides two distinct types of bonds – known as Series EE and Series I. Series EE bonds provide a competitive rate of interest based on 90% of the average yield on five year Treasury securities during the pervious six month period.
Series I bonds, also known as inflation indexed bonds, provide a set base rate augmented by an inflation protection element. The rate of inflation is calculated based on the inflation rate as reported by the consumer price index. The rates of return on both types of bonds are adjusted every six months in May and November. The interest on I-bonds is added each month, with that interest compounded on a semiannual basis. The interest they earn is exempt from local and state tax, and the federal tax due can be deferred until the bond is either cashed in or until it matures.
This combination of tax efficiency and safety makes savings bonds a good choice for many investors. Investors who are looking for a risk free way to invest and grow their money may want to give these instruments a second look. Both types of savings bonds are easy to buy and easy to cash, making them a good choice for investors of all ages. As long as the bonds have been held for at least five years there is no penalty for cashing them. Savings bonds that are cashed before their five year anniversary will be subject to an earnings penalty of three months.
Investors will also find that both Series EE and Series I savings bonds are easy to buy. Savings bonds are sold by many banks, brokerage firms and other financial institutions, as well as direct from the United States Treasury. What’s more, savings bonds provide all Americans with a convenient and profitable way to invest in the future of their country. It is easy to see why this most basic of investments has suddenly become such a popular choice.
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