B is for Bond.
These are questions most people ask when they consider buying savings bonds. Yes, your investment in savings bonds is one of the most safe investments you can make. You’re purchasing the bond and giving the government cash, which they pay you interest back on at a later date. It’s rather like the government borrowing a small amount of money from you, and paying interest on the loan.
Savings bonds are issued by the United States government.
They’re non-transferable, which simply means they must be sold by the government. You can buy savings bonds in a variety of denominations, with $50 and $100 savings bonds being quite popular amounts. You pay less than face value for the bond, and it begins earning interest so that when it matures, usually in several years, the bond is worth the face value. Most bonds will continue to earn interest for years after maturity, so by the time you cash in a bond it can be worth much more than its face value. Some bonds will continue to accumulate interesting for up to 30 years, so if you wish you can leave your investment long-term and still continue to earn profits.
Because savings bonds are registered securities, they’re replaceable.
If they’re damaged, stolen or lost, there is a record of your ownership of the bond so you don’t lose your money. And the amount of a savings bond can never go down, so the money you invest in a bond cannot be lost. Savings bonds are also fairly fluid—the money isn’t locked away so that you can’t get to it in the case of an emergency. But if you cash in a bond early, you won’t see the full return as it won’t be worth its face value yet. And bonds cashed before 5 years are also subject to an interest penalty. But for some, that risk is worth knowing that they can withdraw cash from their investment at any time.
When you purchase savings bonds, you do have to pay Federal Income Tax on the interest they earn.
But you can ease this burden on yourself—a wise choice if you have multiple high-value bonds—by paying the tax on this interest yearly. Or you can opt to wait until the bond is cashed in and pay this tax in one lump sum. You’ll only pay federal tax on bonds, not state or local tax, and if you use the bonds toward education, taxes are sometimes waived.
The two types of bonds you can purchase today are Series EE bonds or Series I bonds.
For Series EE bonds (also called Patriot Bonds) you’ll pay half the face value and it will draw interest every month for 30 years. Series I bonds also accrue monthly interest for 30 years, but you pay full face value for the bond and the interest rate varies with the current inflation indexes.
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Originally posted 2008-12-23 05:49:16. Republished by Blog Post Promoter
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