Today, there are many avenues for investing: shares, mutual funds, gold, real estate, and many others. Some of these types of investments such as shares, mutual funds, etc., can be risky, and the safety of your investments may not be guaranteed. So, it is better to invest in safe investments like savings bonds.
Defining Savings Bonds
In order to finance America's investment in World War I, the United States had created these bonds. They are issued by the federal government and are interest bearing. In contrast with the ones that can be traded in the market, transferring these bonds is not possible. Most of the time, they can be sold at a price which is less than the face value. You get an interest on them for a particular period of time. They are considered to be the safest investment as they represent the government's obligations towards the investors. Based on the prevailing interest rates and inflation data, their rate of return fluctuates periodically. They also exempt you from state and local taxes. Redeeming them is not possible until the interest becomes taxable.
Types of Savings Bonds
There are mainly three types: series EE, series HH, and series I bonds.
Series EE: The interest paid by these bonds varies periodically. The interest is 90 % of the average yield on a five year treasury plan for the past six months. Which means, after every six months, the average yield of five years treasury security is calculated since the last time it was calculated. Later on, they replaced the Series E bonds. During any calendar year, you cannot purchase them having a face value of more than $5,000. Their value increases as the interest accumulates and accrues. After EE bonds become mature or become due, the whole amount of investment made along with the interest is returned. They are mainly purchased by individuals rather than institutional investors. The interest on them is taxed at the federal level.
Series HH: They can be purchased only in exchange with Series EE bonds or E bonds, and savings notes. You can also purchase these with the proceeds from matured Series HH bonds. Their value does not increase with time, and they have a maturity period of 20 years. In contrast to the EE bonds, these can be bought at their face value with denominations of $500 to $10,000. You can purchase them without any limit of face value.
Series I: These are one of the commonly issued bonds, and the selling price of these bonds are the same as that of their face value. Their value rises up to the inflation indexed for 30 years. In any calendar year, you can buy them up to $5,000 (face value). Their new rates are calculated in the month of May and November every year. One part of its interest fluctuates while its other part is fixed. It is constant over the lifetime of the bond.
These bonds can be great sources of investment. The money obtained from this investment can be used in the future for purchasing property or other investments. You can also consult an investment adviser who can answer your questions on savings bonds, its working, and other related information.