A savings bond is issued by the federal government, and sold to the public. The money raised by selling savings bonds is used to help in the cost of running the government.. In turn, the government promises a fixed interest payment every six months. When the bond reaches a maturity date, the purchaser is guaranteed the face value of the bond..
A Savings bond is actually a debt owed to the person who buys the bond. In other words it's a document issued to the purchaser ensuring them that the debt will be paid off with interest, according to the terms of the savings bond agreement.
Savings bonds are one of the safest ways to save and gain interest on your money. Bonds are purchased at certain face values. It can be as little as $50 , or as much as $10000 Interest is paid up till 30 years and is compounded every six months at market value. Savings bonds are except from state and local taxes, and taxes are deferred . A savings bond matures in five years, and a person can agree to cash it in at that point. They also can decided to not cash it in and gain more interest on the bond. The bond will continue to gain interest for 30 years. After the 30 years it will remain at that level. The only down side is there is a penalty if a person cashes the bond before the five year penalty.
Cashing in a savings bond is a simple process. Once the bond matures the holder can take it any bank , credit union, or financial intuition. Proper Identification may be needed if you are not known at the place of redemption, so be prepared to have your social security number, and state ID. Once the bond is examined and is deemed mature, the holder gets the face value and any interest that was accumulated throughout
the bonds duration. The bond can be used as cash, or reinvested in another savings bond. If the holder agrees on another bond, they will have to wait another five years before its matures. The process starts all over again. Regardless of the decision the interest accrued must be reported on the federal tax forms as income.