With saving accounts and certificate of deposits paying extremely low interest rates the past associate of years; is it time to consider placing money into US Savings Bonds?
Depending on your age, you might remember years back when many employers offered an automatic payroll deduction for accumulating the bonds. You could have already walk into your local bank or savings and loan branch and purchased the bonds.
Today it is quite different, purchases are made directly from the US Treasury either online or the postal service. The amount per year that you can buy has also changed from $15,000 per taxpayer social security number to $5,000 today.
However you can buy both an online bond (electronic version) in addition as the old typical paper bond thereby the annual total is $10,000 yearly. Since the annual total is based on each individual’s social security number, a married associate could each buy $10,000 every year.
Advantages of US Saving Bonds:
- Tax deferred, you only pay taxes on the income when you redeem the bonds.
- Small denominations, you may buy in amounts of $25 or more.
- Better interest rates than most savings accounts or money market funds.
- Tax free under certain circumstances depending family income and if used for education.
- Exempt from state and local income tax.
Currently there are two types of savings bonds you can buy, that being an (I) bond or EE. Forget the EE bonds as they lock in a rate for thirty years, at today’s low rates it’s not worth the low investment return. However the (I) bond adjusts its interest rate every six months and will continue to accrue interest up to thirty years.
Keep in mind that all bonds purchased recently or in the past stop earning any interest after thirty years. So if you have old savings bonds that are older than 30 years, you should redeem them and reinvest them in other places or into a newer bond.
Redemption of Bonds:
Must keep up the bonds for at the minimum twelve months and if you redeem before five years you will relinquish the last quarter of earned interest.
In the past five years or so (I) bonds have truly had a better interest provide than many other liquid investments including savings accounts, CD’s and mutual funds. The current six month provide is 4.60 percent as of September, 2011. The bond also is modificated twice a year that being May and November. The six month provide is calculated based on a fixed rate of return and a variable semiannual inflation rate.
To summarize if you are not happy with what is being offered by your bank or money market fund, consider a US Savings Bond as an different.