Savings Bonds
Date Added: August 1999
By Chris Stallman
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So
last Christmas your grandparents decided to give you a savings bond
and you don't know anything about them? That's no problem...your
questions are what we are here to answer.
First of all, you should definitely thank your grandparents
(or whoever it was that gave
it to you) because they care about your future. Savings bonds are
the single most common investments that young adults have. They
are usually given to us as gifts.
What they are are basically notes in the form of money
from the government that say that they owe you the amount of the
savings bond. However, they do not owe you that much money until
30 years from now.
You might
be thinking "What?! I don't get any money for thirty years?"
Well, when you buy a savings bond, you usually pay 1/2 as much as
it is worth and after 30 years of waiting patiently, the bond is
worth twice as much as you paid. For example, you would buy a $100
savings bond for $50 and then could sell it in 30 years for at least
$100.
The reason that you get more than you paid for is because
bonds earn interest.
What this means is that for every dollar that you loan the government,
they pay you back that much and a little more. Over time, that interest
adds up and eventually reaches the value of the bond.
A savings
bond can actually become worth more than what its value is. The
value is just what the government promises to repay after thirty
years. In fact, a $100 bond that earns 4% interest for 30 years
will actually be worth $162 at the end of that time.
To most people, thirty years is a really long time
to just let money sit there without spending it. We encourage you
to always keep your money invested until you reach your goal that
you were investing for. Like if you wanted to save for college,
you probably shouldn't take your money out to buy a new car
at the age of 16.
But if you do decide that you need the money before
the thirty years are up, you can usually cash a savings bond at
any bank. You probably won't receive the full value of the bond
but you will earn as much as you invested and the interest that
it earned during the time that you had the bond.
Savings bonds are considered debts
to our government because they have
to pay back the value of the bond after the time is up. This is
why savings bonds are considered very safe investments.
We hope you now have an understanding of those savings
bonds and if you would like to learn more, you can go to the US
Treasury's site at http://www.publicdebt.treas.gov/sav/savkids.htm
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