A savings bond, just like an investment bond, is a form of debt. In other words, it is a loan. But instead of loaning money to a company, this bond is issued by a government to pay for money borrowed by that government.
I'm sure that you know they are useful investing tools. But did you know that they can be used towards:
You can purchase them if you have a Social Security Number and you are a:
Minors (children under that age of 18) can also own these bonds.
They come four different flavors:
In either case, you can only by $5,000 (face value) or less during any calendar year.
Also, if you decide to cash in Series EE bonds within the first 5 years of ownership, you’ll lose the 3 most-recent months' interest payments. After 5 years, you won’t be penalized.
Safe Investing Tip:
I've had several readers ask me about "E Bonds". They were the predecessor to EE Bonds, but are no longer issued by the U.S. Treasury.
Paper EE bonds increase in value as the interest is added to the principal. After 30 years, paper EE bonds mature, and the bondholder (you) receive all of the money you paid for the bonds, plus all of the interest.
Individuals, corporations, associations, public/private organizations, and fiduciaries can all own paper EE/E Bonds.
Effective April 2009, individuals and various types of entities (trusts, estates, corporations, partnerships, etc.) can have TreasuryDirect accounts and own electronic this type of bond.
Safe Investing Tip:
You can trade in your paper EE bonds for electronic ones at TreasuryDirect.gov, through their SmartExchange program. Click here for more information.
These bonds are sold at face value and offer a fixed rate of interest, adjusted for inflation.
Paper I Bonds can be bought in $50, $75, $100, $200, $500, $1,000, and $5,000 denominations. Electronic I Bonds can be bought to the penny for $25 or more (for example, you could buy a $25.25 face value bond).
Since the possibility of a default by the U.S. government (i.e. bankruptcy) has always been very low, savings bonds are considered to be the safest investment out there.
This does not mean that it cannot or will not happen; only that the probability is low!
U.S. savings bonds also provide tax advantages. A bondholder does not pay state or local taxes on the interest from the bonds.
You can also defer paying federal taxes on the interest (either when you cash in the bond or when it matures).
As an added bonus, they really are "safe"! Each one is registered with the U.S. Treasury’s Bureau of the Public Debt, so you can get replacements if they are lost, stolen, or destroyed.
EE Bonds purchased between May 1997 and April 30, 2005, are based on 5-year Treasury security yields and earn a variable market-based rate of return.
For more information, you can visit TreasuryDirect.gov (they have a savings bond price calculator available for you to use) or the U.S. Department of Treasury's Bureau of the Public Debt.
From the government
The fastest way to buy Series EE bonds is through the government, at TreasuryDirect.gov. The bonds are issued directly to you in your TreasuryDirect account.
You have access to your account 24 hours a day, 7 days a week, and can can set up an automatic purchase schedule for as little as $25. Paper bonds are not offered though.
Safe Investing Tip:
Need some help using the website? Download a free online cheatsheet at http://www.treasurydirect.gov/instit/savbond/otc/HowtoopenanaccountinTreasuryDirecttipsheet.pdf.
Go to TreasuryDirect.gov, print out and complete an online order form, then mail it to the address shown on the form.
Banks and other financial institutions (including Internet Banks)
Paper bonds are printed by your instructions to the bank, and then mailed to you within 15 business days.
Your bond's issue date reflects the date of purchase so that no interest is lost.
Payroll Savings Plan
Through your employer, you can buy electronic EE Bonds using the payroll savings option at TreasuryDirect.gov. Click here for more information and the necessary forms.