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Many people have a regular savings account in a bank and are discouraged by the very low amount of interest they get annually. They want to be able to make a higher rate of interest, but don't want to put their money in the stock market because of its huge fluctuations in recent years. The stock market is just too big of a risk for most people to take with their hard-earned money. Now, there is another way to earn interest on that money while keeping it perfectly secure; buying U.S. Savings bonds is the answer because they offer a higher interest rate and are completely safe. The U.S. government will never go broke or renege on paying the full amount of the bonds when they come due.
Besides the security of savings bonds, another advantage that they have over regular savings accounts and the stock market is that savings bonds are state and local tax free, and federal tax deferred. Dividends paid by stocks, or interest paid on a savings accounts, are taxed as regular income by city, state and federal agencies, but savings bonds are completely exempt from city and state taxes, and federal taxes don't have to be paid until the savings bond is redeemed.
There are two main types of bonds offered by the U.S. government: The Series I bond and the Series EE bond. The I bonds, or inflation indexed bonds, have features that make them attractive to many investors. They are sold at face value price and can earn interest for as long as 30 years. I Bond earnings are added every month and interest is recalculated every six months for the additional inflation rate. The only drawback is that if someone wants to cash in the bond before five years, they are subject to a 3-month interest earnings penalty.
On the other hand, Series EE bonds earn a fixed rate of interest that does not correspond to the state of inflation. Electronic EE bonds (those bought online) are sold at face value price like the I bonds, however, EE bonds purchased offline can be bought for half of their face value price. |
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