For Better Interest, Choose Savings Bonds Over Traditional Savings Rates

If you’re earning around one percent interest in savings rates, you may want to put your money where it will grow more powerfully. Savings bonds are conservative investments that pay good interest rates. Read on to learn more about savings bonds and how they can help you increase your assets.

What Are Savings Bonds?
The federal government of the United States issues several interest-bearing bonds that are referred to as savings bonds. These bonds are non-transferable when you purchase them, and are tied directly to the competitive marketplace of governmental finances.

You will often be able to purchase savings bonds at a far lower price than their face value. This is partially what allows them to accrue interest over time. Since these investments are linked to debt and finance obligations that governments carry, they usually come with very little risk. You can invest in savings bonds knowing that your money will be safe.

Watch the Interest Rate Environment
You will notice a fluctuating and vacillating rate of return on savings bonds. These rates fluctuate based on the interest rate environment. Inflation also has a powerful effect on the rates of return of savings bonds.

You may not know this, but the American government initially created savings bonds to help finance expenses that came about as a result of World War I. Generally, investors can purchase two types of savings bonds: Series EE or Series I bonds. Series EE bonds will pay a rate that is equivalent to 90% of the average yield on five year Treasury securities over the past six months, although this rate will fluctuate.  Some bonds will also offer a fixed interest rate.

The Federal Reserve’s website will present a table of prevailing interest rates. You will notice that these rates are very competitive when it comes to safe investments. Sure, you won’t get the returns that you might get when investing in high-risk stocks, but with bonds, you don’t have to trade in too much security. Your investment will be largely safe.

Tax Benefits of Savings Bonds
Also, savings bonds are subject to a variety of tax benefits. First of all, you won’t be required to pay periodic interest subject to income tax. You can actually wait until you cash in the bonds and then report the income you have made. This reduces the amount of income tax you have to pay.

You can also exclude the income you earn from savings bonds if you use the earnings to pay for higher education. The federal government does establish certain regulations that pertain to income limits and types of expenses.

The income earned from savings bonds is not subject to local and state income taxes. You get to keep the bulk of what you earn from savings bonds.

The Risks Are Low
You also minimize your risk, because the default risk on savings bonds is very small. This is due to the fact that they are backed by the full faith and credit of the U.S. government.

Remember, you can’t cash in savings bonds within six months, or sometimes 1 year, of the date which the bond was issued. However, once you do redeem your bond, you’ll gain a significant amount of profit from the accrued interest.

Always try to wait to cash in your savings bond until five years have elapsed, and you won’t have to pay a penalty.

Savings bonds are great low-risk investments that pay off fantastically for most investors.

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