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A Guide to US Savings Bonds

If you’re looking for a safe, easy way to start investing, U.S. Savings Bonds are the way to go. You can invest as little as $25 to start or top off at purchasing $30,000 worth of Savings Bonds per year. It is a great way to save, as Savings Bonds are free from all state and local income taxes and federal income taxes can be deferred if you wait until they reach final maturity before cashing them in.

U.S. Savings Bonds are non-marketable securities fully backed by the US government; therefore they will never lose their principle or interest due to fluctuating financial markets. Buy one for $50 it will never be worth less than $50. They are also a registered security meaning the person named on the bond owns them and they cannot be resold, only redeemed through a US Treasury designated agent.

There are two types of U.S. Savings Bonds available, the Series I and Series EE. They are categorized by the way in which they pay interest.

Series I bonds are inflation indexed. These bonds were created to protect the bond owner/investor from inflation. The interest rates are announced every May 1 and November 1st. Effective November 1st, 2009, Series I bonds will earn an annual rate of 3.36%. These bonds can be purchased in denominations of $50, $75, $100, $200, $500, $1,000 and $5,000.

I Bonds earn interest from the first day of the month they are issued and increase in value monthly, the interest is paid when redeemed. You can redeem them only after the 12 month holding period and can hold them up to 30 years.

Series EE bonds are low-risk and government-backed. You can use these bonds for financing education, supplemental retirement income, as gifts and other special events. The minimum purchase bond is $50 and they are purchased at half their face value. Buy one for $100 and it is worth $200. The EE Savings Bonds can be purchased in denominations of $50, $75, $100, $200, $500, $1,000, $5,000 and $10,000 only. The maximum purchase per year is $10,000 in paper bonds each year.

As with the Series I, the Series EE can mature and earn interest for up to 30 years. Series EE bonds have different rules depending upon when they were issued. For example, those bonds issued on or after May 1, 2005 will earn a fixed interest rate for 20 years at which time the bond will reach its face value. EE Bonds increase in value every month. Interest is compounded semiannually.

There are pros and cons to investing in Savings Bonds. Yes, they are a secured investment which cost you no state or local taxes but figuring maturity, interest rates, a bond’s current value and when to cash them in can be confusing. It is estimated that Americans forfeit $150 million annually by cashing in bonds at the wrong time. Savingsbond.gov offers a calculator that allows you to calculate the value of your paper Savings Bonds.

To purchase Bonds you can go to one of any of the 40,000 financial institutions that offer them. Your local bank probably does. Another alternative is purchasing them online with a credit card at TreasuryDirect.gov.

Regardless of your reason for purchasing Savings Bonds it is a safe and profitable way to get started investing or to add to your established investment portfolio. For additional resources on U.S. Savings Bonds refer to the following sites:

• Savingsbonds.gov: A guide to savings bonds
• Sec.gov: Savings bonds types
• GSA.gov: About savings bonds
• Ustreas.gov: Introduction to savings bonds
• Investopedia.com: Series EE Bonds
• ibonds.info: What are I Bonds?
• ManagePersonalFinance.com: The pros and cons of bonds
• Kiplinger.com: How to buy savings bonds
• Savings-bond-advisor.com: How Series EE savings bond interest rates work
• SavingsBonds.com: Basic information about savings bonds

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