Savings Bonds

What Is A Savings Bond?

A savings bond, like any other kind of bond, is loan provided by the investor to the issuer of the bond.  Savings bonds, in particular, are a type of bond usually issued from a national government.  The government must repay this 'loan' after a designated amount of time and provide the agreed upon amount of interest on the loan.  Savings bonds are a very safe way to invest one's money because they have the full backing of your national government.  As long as your government does not collapse (no overthrows of the government) then you will be paid in full your principle paid and interest owed from the bond.

How A Savings Bond Works

Most savings bonds can be bought for as little as twentyfive US dollars and the principle paid and the interest rate earned on savings bonds is except from local and state taxes within the United States.  However, the interest rate on savings bonds is a fixed rate.  Because the interest rate never changes, long-term savings bonds may not keep up with the rate of national and worldwide inflation and then may not provide you with any significant gains.  Yet, because of this fixed rate you are ensured to receive a set amount of money without the risk loosing your investment.  There is a penalty for cashing in savings bonds prior to the date of maturity and if you do cash in your bond before this designated date you will have to pay a fine.

US Savings Bonds

One of the most popular types of savings bonds available are US savings bonds, which are bonds sold by the US Treasury department.  By selling savings bonds the Treasury Department can raise funds for the nation's various operations.  During war time many people consider it their patriotic duty to buy national savings bonds in order to help finance military operations and the cost of the war.  One of the advantages of purchasing a US savings bond is because the bond is non-transferable and cannot be sold to other investors.  US savings bonds can only be bought from or sold by the US Treasury.  This means that changes to the stock market can never affect your savings bond and, therefore, your money will be safe until the maturity date of the bond.

Benefits To Savings Bonds:

---Savings bonds are safe investments because they are backed by the government

---The principle and interest incurred from your savings bond is always safe and cannot be affected by gains or loses on the stock market

---Savings bonds can never be lost because they are registered with the US Treasury Department and can be replaced if lost, stolen or destroyed.

---On the date of the bond's maturity you will always receive your principle paid for the bond and the agreed upon interest from the bond. You can never lose your money in a savings bond.

Article written by Nicole Sivan