Ever get a U.S. Savings Bond as a gift? Often, they are given as gifts to help you save and pay for college. Have you wondered what a savings bond is and how it works?
What is a Bond?
When a company, or in this case the United States government, needs to borrow money they will issue bonds. Usually, you purchase them for less than the value printed on the face of the bond. In exchange for lending them money they promise to pay you interest for a certain period of time.
Where do you Buy US Saving Bonds?
Series E and I bonds used to be available in banks, but in January of 2012 the purchase of Savings Bonds went electric! Now, the only way to purchase them is online, however, you can still purchase paper Series I bonds through your IRS tax refund.
Savings Bond Basics for Treasury Direct Purchase
• You buy them at face value - a $50 bond costs $50 • In any amount starting at $25 • $10,000 is maximum yearly purchase per series • Interest rates are announced every May 1st and November 1st • Bonds can continue to earn interest for 30 years
Two Types for Direct Purchase
1. EE bonds have a fixed rate of interest when you purchase. (EE replaced the older E bonds for sale prior to going online January 2012)
2. I bonds have two interests rates. One fixed at purchase and another rate that semi-annually adjusts with inflation.
Important Things to Know
• You must hold a bond for one year before you can redeem it.
• If you cash it in before you have held it for five years you will forfeit 3 months of interest.
• Bonds used for education can be tax free BUT the bond must be in the parent’s name, NOT the child’s name. It is acceptable to have the child named as beneficiary on the bond. Please review additional requirements to qualify for the savings bond education tax exclusion.
Are you saving with US Savings Bonds? What do you plan to use them for?