What is a U.S. Saving Bond?
US Savings Bonds are non-marketable securities issued by the US Treasury Department to help pay for the U.S. government’s borrowing needs. You cannot buy or sell them unless you are an authorized issuing and redeeming agent designated by The US Treasury Department. Additionally, U.S. Savings Bonds are also considered a registered security – which means that the person or persons named on the bond owns them.
Why people buy US Savings Bonds?
There are several reasons why Americans buy Savings Bonds. Often less risk is a primary reason. Savings Bonds are backed by the full faith and credit of the United States Government, therefore, the principal and interest will never be lost due to changes in the financial markets. Additionally, people like Savings Bonds and they are familiar with Savings Bonds. In a Doorways to Dreams (D2D) Fund completed Tax Time Savings Bonds pilot projects between 2007 and 2010, it was found that:
• 90% (2008) of bond purchasers said they would recommend bonds to family and friends.
• 92% (2008) of bond purchasers were very or mostly glad they bought bonds.
• 65% (2008) of tax clients said they were “familiar” with bonds, versus 32% for IRAs (individual retirement accounts).
• 63% of tax clients had purchased a bond in the past, received bond as gift, or knew someone who had owned a bond.
An additional benefit of Savings Bonds is that they are free from ALL state and local income taxes. You can also defer federal income taxes on the earnings if you wait until the bond reaches final maturity or when you cash it in. You can invest as little as $25 so it is an easy way for Americans to save. Some savings bonds are even entirely Federal Income Tax Free if used for Educational Purposes.
Furthermore, according to the Doorways to Dreams survey, U.S. savings bonds attract small savers, they attract new savers, and people do want to save.
• 64% (2008) and 55% (2009) of bond purchasers reported having less than $100 saved or invested prior to purchasing.
• 37% (2008) and 50% (2009) of bond purchasers were saving their refund for the first time.
• Saving is a growing concern. When asked “compared to a year ago, savings is more important,” 91% agreed in 2010 and 89% agreed in 2009.
Types of U.S. Savings Bonds
Series EE bonds are available in paper and electronic versions. In both cases, you cannot buy more than $5,000 (face value) during any calendar year. If you redeem the bonds in the first five years of buying them, you’ll forfeit interest payments for the three most recent months. After five years, you won’t be penalized for redemptions.
Paper EE bonds are purchased at a discount of half their face value, so you’ll pay $25 for a $50 bond. Paper EE bonds increase in value as the interest is added to the principal. When paper EE bonds mature in 30 years, you’ll receive all of the money you paid for the bonds originally plus all of the interest.
Electronic EE bonds are sold at face value, so you’ll pay $50 for a $50 bond. The bond is worth its full value upon redemption. The interest is issued electronically to your designated account.
Series I bonds like EE bonds, are available in paper and electronic versions. These bonds are sold at face value and you can buy up to $5,000 (face value) in any calendar year. Series I bonds offer a fixed rate of interest, adjusted for inflation. As with Series EE bonds, if you redeem series I bonds in the first five years, you’ll forfeit the three most recent months’ interest. After five years, you won’t be penalized for redemptions.
In the past, you could only purchase Savings Bonds at your local bank, but with the wave of popularity growing, Savings Bonds are now available via the internet.
U.S. savings bonds are registered with the U.S. Treasury’s Bureau of the Public Debt, so you can get your bonds replaced if they are lost, stolen, or destroyed.
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