Savings bonds are an uncommon type of long-term investment that can be given as a gift. As a result, recipients of these bonds are more grateful, given that some savings bonds have an annual rate of 6.89% through April 30, 2023.
Savings bonds in the US offer security and are protected against inflation, which can make them a particularly attractive option at this time even though their returns are typically lower than those of mutual funds or stocks.
So in this article, we will examine what savings bonds are, how much are savings bonds worth, why they are regarded as safe investments, and what distinguishes them from other long-term savings options.
What is a Savings Bond?
A savings bond is a loan given to the Treasury of the federal government of the United States. You are lending money to the government when you purchase one. Even if they are under 18, you can register yourself or another person as the owner or co-owner of a savings bond.
In exchange for lending money to the United States through bonds, the government promises to reimburse that sum plus additional funds in the future (interest).
Savings bonds come in two types: “series EE” and “series I,” and you can purchase them electronically on TreasuryDirect.gov, the website of the U.S. Treasury.
Features of Savings Bond
- Paper bonds are no longer available for purchase from banks or brokers, but they can still be redeemed there.
- Savings bonds cannot be held in brokerage accounts or sold to other investors, unlike other types of bonds.
- Only the bond’s owner or beneficiary may cash it.
- Because the U.S. government backs saving bonds, they are incredibly low-risk investments. However, because they are low-risk, they also provide a low return on investment.
- Series EE and Series I savings bonds are two varieties of bonds, and each has a unique interest rate structure.
- Determining which bond is best for you can be made easier by understanding how they operate.
- You may double your investment, depending on the savings bond you select, if you hold it for at least 20 years.
What is a Series EE Savings Bond?
The Series E savings bond is the processor of the Series EE bond. The first Series E also referred to as the “War Bond,” was used to finance American involvement in World War II.
A series EE bond has a fixed rate that pays interest, and, if held for 20 years, will guarantee a return of twice the value.
To guarantee that the bond’s value doubles after 20 years, regardless of interest rate, there is a one-time adjustment made.
Note that the Series EE bonds can be bought for as little as $25 in face value.
Lastly, depending on the issue date, Series EE bonds purchased before May 2005 have either a variable or fixed rate.
What is a Series I Savings Bond?
A series I bond’s interest rate is made up of two different components: a fixed rate and a twice-yearly inflation-adjusted rate. Your money is supposed to be shielded from inflation, which is the general increase in the cost of goods and services therefore you need more U.S. dollars to pay for the same items over time.
How Much are Savings Bonds Paying?
- As of right now, the annual fixed rate for Series EE savings bonds issued will be 10%.
- The annual composite rate for Series I savings bonds will be 9.62%, a portion of which is indexed to inflation every six months.
- The original 20-year maturity of a bond is covered by the EE bond fixed rate. Both series’ bonds have a 30-year interest-bearing life.
- Furthermore, savings bond rates are set on May 1 and November 1 of each year. The monthly interest is accumulated and compounded every two years.
- Bonds that have been held for less than five years incur a three-month interest charge.
Serie EE bonds’ interest income is free from local and state taxes but not from Federal taxes. If the money is used to pay for a recognized higher education, the owner might be eligible for tax relief.
How Much Are Savings Bonds Worth After 20 Years?
Series EE bonds consistently earn interest until you cash them. Since they mature after 20 years, be sure that the EE bonds you purchase today are sure to double in value in 20 years.
How Much Are Savings Bonds Worth After 30 years?
Although the interest on Series I bonds can accrue for up to 30 years, they must be held for a year. After five years, you can leave without being penalized. The 30-year maturity date for Series I bonds is sold at face value.
How Do You Know How Much a Savings Bond is Worth?
One of the safest investments you can make is a savings bond. A savings bond’s value is supposed to rise over time, but it’s easy to lose track of that value over an extended period.
Fortunately, finding the value of a purchased savings bond is simple thanks to TreasuryDirect’s savings bond calculator. You’ll need to know the bond series, face value, serial number, and issue date to determine the value of your savings bond.
Paper Savings Bonds
The majority of paper savings bonds were no longer produced by the U.S. Treasury in 2012, but they are still redeemable at any time. At maturity, they do stop earning interest. By entering the following data from the savings bond on the TreasuryDirect website’s savings bond calculator, one can determine the value of a paper savings bond:
- Date Issued
- Type of Bond (Series EE or Series I)
- Denomination
- Total value
- Issue price
- Interest
The TreasuryDirect website allows you to enter information from multiple bonds to create a list and determine the total value. You can also use the site to determine the worth of the bond if you buy it on another date, or cash it in at the same time as today.
Electronic savings bonds
Nowadays, the majority of savings bonds are only available for purchase online. If you have electronic bonds, you can log into the TreasuryDirect account you used to buy them and view the value in the account information under the Current Holdings tab.
How Do I Cash a Savings Bond?
The process of cashing in on your Series EE savings bond is straightforward.
- Electronic savings bonds: You can cash in your bonds on TreasuryDirect if you bought them there. Information on redeeming your bonds can be found once you log into your account. Within two business days, the funds will be directly deposited into a checking or savings account.
- Paper savings bonds: You can redeem your paper savings bonds at a branch if your bank accepts them. By sending paper bonds and FS Form 1522 to Treasury Retail Securities Services, you can also exchange them for cash.
What You Must Know Before Cashing on Your Savings Bond
- A Series EE or Series I savings bond can be easily cashed in. All you have to do to redeem your savings bond for cash is sign into your TreasuryDirect account and follow the on-screen instructions.
- Within two business days, the cash value will be credited to your bank account. When you redeem your savings bond, you will also receive your bond’s interest income.
- Remember, paper savings bonds can be converted to electronic bonds, and all newly issued savings bonds are electronic.
- To exchange a paper savings bond for cash, you must take it to a bank with a valid photo ID.
- Always check the value of your savings bonds before you cash them in. Savings bonds typically stop paying interest after 30 years, but you can redeem your bond earlier.
- A savings bond must be held for at least a year before being cashed in. The only situation where this rule doesn’t apply is if a natural disaster has affected you.
- Note that the last three months of interest will be lost if you cash in before waiting at least five years.
- Lastly, it’s important to consider your financial needs and the interest rate on your bond. It’s generally preferable to hold off until your savings bond has fully matured.
Are Saving Bonds a Good Investment?
The following are reasons why Savings Bonds make a good investment even in 2023:
#1. It is secured:
The main quality of savings bonds is security. Given that the U.S. government is backing them with its full faith and credit, these investments are regarded as risk-free.
#2. It is simple to invest in:
Simplicity is another key selling point. Using the TreasuryDirect website, buying savings bonds is simple even without a brokerage account. Another advantage is the small $25 low initial minimum investment requirement.
#3. Cash easy:
They are also simple to make money from. After redeeming your savings bonds you can have the money transferred directly to your checking accounts by using the TreasuryDirect website.
#4. Inflation proof:
An additional significant advantage of Series I bonds is inflation protection. No matter how much inflation increases, investors can be confident that the money used to purchase Series I bonds won’t lose purchasing power.
#5.Tax proof:
Savings bonds also have tax benefits. State and local taxes are not charged on the interest, but estate and inheritance taxes might be. Interest is subject to federal income tax, but if it is used for approved educational purposes, it may also be avoided.
Do Savings Bonds Expire?
No, savings bonds do not expire, however, you won’t receive any further interest if you keep your bond after it matures and this in turn affects how much your savings bond is worth.
Savings bonds cannot be spent without being redeemed, so from that perspective, the value of your bonds would be regarded as “safe.”
On the other hand, if your bond isn’t redeemed, you’ll miss out on other opportunities to earn interest. Holding a bond that earns nothing and is explicitly losing money to inflation every day doesn’t make much sense with inflation as high as it is right now.
Finally, whether you redeem your savings bonds or not, you will still be responsible for paying taxes when they mature. In the year of maturity, make sure to report all earned and unreported interest on your tax return; if not, you risk incurring a tax underpayment fine.
- How Do Bonds Work As Investment 2023 & All You Need to Know
- INVESTMENT GRADE BONDS: Definitions and Ratings
- SURETY BONDS: What are Surety Bonds(+US Practices)
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