What Are Savings Bonds?
Savings bonds are bonds issued by the United States Treasury to pay off government debt. When buying a bond, daily buyers lend money to the US government.
So when a bond matures, usually within 20 to 30 years, you can redeem it at face value, which has accrued interest over the years. US savings bonds are considered one of the safest investments you can make because they are guaranteed by the government.
Learn how savings bonds work and how they can affect your finances.
Definition and examples of savings bonds
Savings bonds are debt securities guaranteed by the Treasury. The government uses the money it receives from the sale of savings bonds to pay off debt.
As a consumer, you will receive interest once the bond expires, either at the time of redemption or for up to 30 years, making it a safe investment.
Savings bonds are often purchased as a gift. If a friend or relative is having a child, for example, you can give a savings bond as a gift to the new child.
Then the child can change it whenever she wants, such as when she graduates from college or wants to buy a home of her own. They will receive the original investment plus accrued interest.
Minors are legally capable of owning US savings bonds, which gives them the ability to place the investment in the name of a child.
How Savings Bonds Work
There is a process that defines how savings bonds affect you and the government, which is detailed below.
To purchase savings bonds, you can purchase them directly online at TreasuryDirect.gov. You will create an account and then select the type of savings bonds you want to purchase, either Series EE or Series I.
Both types are purchased at face value, which means that you will pay $ 50 for a value of $ 50. You can buy any. Savings bond amount, down to the last penny, with a minimum of $ 25 for online payments.
You can buy a voucher online at any time and even set up recurring debits from your bank account if you want to buy vouchers on a constant basis.
You can register titles in your name or as a gift to others. If you choose the latter, the recipient will also need a TreasuryDirect account, but you can still buy bonds for them until you complete the account registration.
For both types of bonds, you can buy up to $ 10,000 of each, as long as they are purchased online through TreasuryDirect.
Titles you receive as gifts also count toward the limit. The two exceptions to this rule include if a bond is transferred to you due to the death of the original owner or if you have a paper bond issued before 2008.
You can redeem your vouchers at any time after the first year of purchase. However, keep in mind that you will not receive all the interest if you make a profit before the five years. You can earn interest for up to 30 years.
The interest you earn depends on the series you buy and when you buy it. For example, if you buy $ 1,000 of Series EE bonds, it will be twice what you paid when you retired them in 20 years, regardless of the rate.
The Series I interest rate changes every six months based on your fixed-rate and inflation, affecting repayment. Currently, Series I accrues interest of 3.54%.
Series EE bonds that have been issued since May 2005 produce a fixed interest rate, so you know the exact interest rate you will receive when you buy them. For a series EE bond purchased from May 2021 to October 2021, the rate is 0.10%.
Interest is earned each month and compounded twice a year until the bond is 30 years old or you change it, whichever comes first.
Savings bonds are exempt from state and local income taxes. When you file your tax return, you will report the interest every year or whenever one of these things occurs first: the title expires, you receive the title or relinquish the property, and the title is reissued.
Types of savings bonds
There are two types of savings bonds you can buy now: Series EE and Series I.
Series EE: This type of bond accrues fixed interest and is currently at 0.10%. After 20 years, your bond will be worth twice what you paid for it, regardless of the rate.
You can buy at least $ 25 in Series EE bonds by paying face value. You can only buy EE series online.
Series I: this type of bond accrues a fixed interest and a rate established twice a year based on inflation. If you buy one now through October 2021, it will have an interest rate of 3.54%.
You can buy Series I electronically or on paper through your federal tax refund. You can buy up to $ 10,000 in Series I bonds if you buy online, but up to $ 5,000 if you buy paper bonds.
We hope you enjoy watching this video about Saving Bonds
Source: Szarka Financial
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