How Do Savings Bonds Work? - The Simplified Guide 2023

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November 22, 2022

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Are you looking for a safer way to grow money over a long period? Well, savings bonds can top your investment options at such times. These bonds are ultimate symbols of security and stability since they are fully backed by the U.S. government. This post explains everything about these bonds, their basic definition, how to buy them, how to cash them in, and more. Let's go. 

What is a Savings Bond? 

Think of the savings bond as a loan. However, in this investment, you are the lender, and the U.S. government is the borrower. You lend money to the government and get fixed interest. The longer the time of bond, the more interest you get. 

‍Simply put, saving bonds are nothing but the money you lend to the U.S. government to assist federal expenditures. In return, the government pays you the money back with interest after a fixed period. These bonds are popular because they are easy to buy, safe, backed by the U.S. government, and most affordable. Also, there are different types of savings bonds you can choose from. 

‍These are the lowest-risk investments since backed by the government. Also, buying these bonds helps the government in a financial crisis. They use these funds for new capital projects and to manage the national economy. Savings bonds are non-negotiable, and you cannot transfer them. Also, they are not subject to any local or state income taxes. You never lose your principal investment but get a low-interest rate. 

Types of Savings Bonds 

Series E Bonds 

These types of savings bonds are no longer available today, however, if you own old Series E bond, you can cash in by going to the bank with the documents and checking their values on Treasury's website. 

Series EE Bonds 

You can buy Series EE bonds from the U.S. Treasury website. These bonds get guaranteed double value in 20 years. The condition is, you have to keep the bond for at least one year, and if you withdraw it before five years, you will have to pay a penalty. ‍

Series I Bonds

If you don't like the inflation waves, Series I bonds are made for you. Their interest rate is fixed, and you can invest an amount as small as $25.

How to Buy Savings Bonds? 

Buying savings bonds is quite simple. All you have to do is, go to the website of TreasuryDirect and buy bonds. If you are fond of paper bonds, you can purchase Series I bonds at the time of your annual tax return filing by using your IRS tax refunds. Another advantage of this investment is you don't have to pay local or state income taxes. ‍

You can purchase the bond amount from 25$ to 10,000$ (up to 5,000$ for Series I paper bonds). Additionally, you have to pay only half of the face value. So, if you buy a 1000$ bond, you have to pay 500$. You can choose how long you want to hold on to the bond up to 30 years. ‍

If you want the full returns, you should wait till the bond maturity. At that time, you will get double the amount that you invested with additional interest. Series EE savings bonds reach their face value in exactly 20 years. On the other hand, Series I don't have such a guarantee of fund maturity. However, both bonds will reach full value in 30 years. 

How to Calculate Savings Bond? 

‍As savings bonds are long-term investments, it's easy to lose the track of the interest and bond value over time. Fortunately, once you have bought the bond, you can always go to TreasuryDirect's website and use the savings bond calculator to calculate the current value of your bond, its face value, issue date, maturity year, and more. Easy, isn't it?

How to Cash in Savings Bonds? 

‍Like calculating the savings bond's value, cashing in the amount is easy. We suggest calculating the value before cashing in so you will know the worth of it. The more you wait, the more amount you will get. Investors and experts advise you to wait at least five years to cash in. However, if you want the full face value and additional interest, wait until the maturity date of the bond. 

‍To cash in the bond, you should log into your TreasuryDirect account and follow the instructions. Once you complete the procedure, you may receive the amount in your linked bank account within two business days. If you have a paper bond, you can go to a bank with your photo ID and get the cash. 

Are Savings Bonds Worth It? 

If you want to make the most of your bonds, you should wait until the maturity date. These bonds grow slowly and are worth something after 20 to 30 years. So, if you are looking for long-term savings, savings bonds are worth it. You might have to consider other investment options if you are looking for short-term investments.

The Bottom Line 

‍Are you still confused about whether to invest in savings bonds or not? Compound Banc can help you solve this confusion and get clarity. With our innovative financial tools, passionate customer support team, and ever-growing community, you can unlock your investment choices and let your money grow safely. Join our community and explore the option of investing in real estate that can give you higher yields. 

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