Since introduced in 1935, U.S. savings bonds have provided a secure investment for Americans holding them.
When held to maturity, a U.S. savings bond can outperform the typical savings account and compete well with some other investments. Importantly, bonds are protected by the full faith of the U.S. government, giving investors peace of mind.
As of January 1, 2012, important changes were made in the purchase of U.S. savings bonds. Read on and we’ll cover what these changes are and how you can purchase a bond.
Savings bonds — Two types of savings bonds are available today — Series EE and Series I. The differences between these two types of bonds is negligible as each one is issued for its face value. However, an I bond offers both a fixed rate of return and a variable semiannual inflation rate while the EE bond offers a fixed rate of return only.
Purchases — Paper copies of the savings bonds are no longer issued through commercial banks. Instead, you can create an account at Treasury Direct and order yours electronically. You won’t receive an actual paper bond and you can order your bonds in any amount such as $51.31. You can still get paper I bonds, but only as part of your IRS tax return. These bonds are issued in denominations of $50, $75, $100, $200, $500, $1,000 and $5,000.
Restrictions — Not every person can buy a U.S. savings bond. You need to be a U.S. resident or a civilian resident living abroad. If you are a civilian worker of the United States government you can buy savings bonds. Minors, regardless of age, can buy savings bonds too. The U.S. Treasury limits purchases to $10,000 per year per each Social Security Number.
Worth Noting — If you redeem either Series EE bonds or Series I bonds within the first five years of ownership, you’ll forfeit three months of interest. Once your bonds are five years old you can redeem them without penalty.
Although U.S. savings bonds can be a good investment, you won’t get rich by holding them. In fact, the current rates for EE bonds are not keeping up with inflation while I Bond rates do. Consult with your tax advisor to find out if savings bonds are a worthwhile investment for you and, if so, how much of your portfolio should include them.
See Also — How to Open a Savings Account
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