What are Savings Bonds?
Savings bonds are a way for ordinary Americans to purchase debt from the U.S. government. U.S. savings bonds are considered one of the safest investments you can buy because they are backed by the full faith and credit of the U.S. government, most having a face value ranging from $50 to $10,000.
Savings bonds stop earning interest after 30 years and must be held for at least one year before they can be redeemed. They must be held for at least five years to be redeemed without a penalty. The penalties are usually small, but if you want to get the full value of your money, you should make sure to hold the bond for at least five years.
Different Types of Savings Bonds
There are two main types of savings bonds: Series I bonds and Series EE bonds. Depending on the type you purchase, there are some key differences.
Although both types of bonds are purchased at face value, you can no longer buy paper EE bonds. However, you can still purchase paper I bonds using your tax refund through Form 8888.
For EE bonds, the interest rate is based on the bond’s issue date. EE bonds issued between May 1997 and April 2005 earn a variable interest rate, while those purchased after May 2005 earn a fixed rate.
For I bonds, they earn a composite interest rate derived from a fixed rate when the bond is purchased and an inflation rate that is calculated annually.
Calculating Your Savings Bond Value
When you are ready to calculate the value of your savings bonds, there is some information you need to know, including: the type of bond, denomination, serial number, and issue date.
Once you have this information, you can use a savings bond calculator to determine your bond’s current value. The primary site for this is TreasuryDirect.gov, which is managed by the U.S. government.
In addition to the calculator, you can find detailed instructions on determining the future value of your bond, how to build and maintain a portfolio of bonds (if you have more than one), and how to find the interest that needs to be reported to the IRS.
Tip: When it comes to reporting interest on your bonds to the IRS, you can do so either when you cash them in or when the full maturity period of the bonds is completed.
Maximizing Your Savings Bonds
Savings bonds are traditionally associated with low-interest rates. However, the Treasury Department has promised to double your investments in EE savings bonds in no less than 20 years.
Therefore, if you purchase bonds, it is wise to have a plan to hold them for a full 20 years. If you redeem them early, you will only receive the guaranteed interest rate until then, which will be significantly lower than if you waited for the full term. You should incorporate savings bonds as part of a long-term investment strategy.
Many investment professionals consider U.S. Treasury savings bonds one of the safest ways to invest your money. The high reliability of these returns is balanced by the potential yield generally being lower than other asset classes.
As a result, these investments appeal to those who want an expected return over a specified period of time.
Frequently Asked Questions (FAQs)
How can I buy savings bonds?
You can buy electronic I bonds and EE bonds online through the U.S. Treasury at TreasuryDirect. If you want to buy a paper I bond, you can designate your tax refund to purchase the bond using Form 8888.
How can I redeem savings bonds?
You can redeem your savings bonds electronically through TreasuryDirect. If you have paper bonds, you can redeem them at most financial institutions.
How much
How long does it take for savings bonds to mature?
All bonds currently issued by the U.S. Department of the Treasury have an original maturity period of 20 years. They continue to earn interest for an additional 10 years, making the total maturity period 30 years.
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Sources:
TreasuryDirect. “Comparing Series EE and Series I Savings Bonds.”
FINRA. “Agency Securities.”
TreasuryDirect. “Series EE Savings Bonds.”
Internal Revenue Service. “Frequently Asked Questions.”
TreasuryDirect. “May 2005 and Later (EE Bond Rates and Terms).”
TreasuryDirect. “Buying Savings Bonds.”
TreasuryDirect. “Savings Securities Maturity Chart.”
Source: https://www.thebalancemoney.com/how-to-check-calculate-the-value-of-a-savings-bond-online-4179025
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