Are U.S. Savings Bonds a Good Investment?
- The basic idea behind savings bonds is that you loan money to the federal government, and then it pays you back with interest. You can buy bonds in many different denominations, like $50, $100 and $1,000. These bonds are long-term investments, guaranteed to double in value in 20 years. They can earn interest for 30 years from the time that they are issued. If you buy paper Series EE bonds, you pay half the face value for them. If you buy Series EE bonds online from the Treasury website, you pay full price for the bond. With Series I bonds, you pay full price for them regardless of how you buy them.
- One of the big draws of investing in savings bonds is the relative safety that they provide. These bonds are backed up by the credit of the United States government. This means that unless the government goes under, your investment is safe. By comparison, most investments carry with them a certain amount of risk. For instance, when you invest in stock or corporate bonds, the company has to stay in business for you to make any returns. Savings bonds are much safer by comparison.
- One reason to invest in savings bonds as so that you can take advantage of education benefits. When you put money into savings bonds, you can sell those bonds and use the money for college expenses at some point in the future. When you do this, you do not have to pay any taxes on the interest gains from the savings bonds. This allows you to save for a child's or your own education expenses without worrying about taxes.
- Although these bonds the provide you with safety and some benefits when saving for education, you could do much better with other investments. By comparison, when you invest in the stock market or mutual funds, you can earn a much higher return on your investment. This means that if you value safety over returns, savings bonds are for you. If you would rather make as much money as possible, the savings bond is not the best investment for you.