Investing

Savings Bonds: How to Access Your Money

As you may know, savings bonds have become the most popular investment in recent history. People enjoy investing in savings bonds because the U.S. government fully backs it, and it is the safest method of investing. Be sure not to underestimate any information given by a stockbroker, but also know that they may not be telling the whole truth.  Individuals often get the idea that they can cash in their bond in a short period. However, this is not true. Some brokers forget to leave out that there are penalties for cashing in too early. Never underestimate the system of savings bonds.

Everything You Need to Know About Savings Bonds

A savings bond primarily works just like any other bond, stock, or investment. However, it does have some varying aspects. A savings bond is seen as a loan you make to the United States government to pay for its borrowing needs. Saving bonds are very similar to T-bills; they are a form of debt security that is presented by the Department of Treasury. An excellent aspect of savings bonds is that they are the safest method of investment due to the government’s involvement.

Another differing aspect that savings bonds possess is that the interest rate is a fixed percentage that is set for a specified period. Some investors see this as a fall through factor. Regular stocks and bonds interest rates rise and fall with the market. Skeptics may say it’s the government’s way of making more money than they need; however, this is not true. The Department of Treasury set these regulations to ensure that the investment cannot fluctuate, which should be seen as an advantage.

For example, a regular bond or stock can rise or fall with the bubbles that take place in the stock market. You can gain a large sum of profit, but it also opens a window for you to lose money. With this in mind, the federal government wanted to prevent either situation from happening; therefore, they created a fixed rate to have an equal agreement on both sides.

Different Types of Savings Bonds

Necessarily, there are two types of savings bonds. Both of these savings bonds are purchased solely on their face value and must be held for at least two years. However, keep in mind that there are penalties if these are not held for at least five years. Once your five years are up, you can redeem your payment without having to worry about any penalties. Let’s discover the differences between the two types of savings bonds.

Series EE

This type of savings bond is considered to be a slight risk and is often used towards educational expenses, home-buying funds, retirement funds, or wedding expenses. Series EE bonds have a fixed interest rate that lasts for the entirety of the bond. After the first three months, the interest compounds monthly. The rate of interest is then added on to the face value of the bond, so you benefit in the long run.

Series I

Opposed to the other type of savings bond, this one has a different rate of interest. The interest rate is determined by two significant factors – fixed and variable rates. These two factors are determined by the current inflation rate of the economy. However, the fixed rate stays the same for the duration of the bond, but the variable rate is reset every six months.

Where to Buy A Savings Bond

Some people make the mistake of going the extra mile and speaking to various stockbrokers. Likewise, as of 2012, the Department of Treasury made it possible for individuals to purchase savings bonds online. You can research which program you prefer to buy your bonds through, although it is suggested to go through the Treasury’s website, as it is the safest.

The price range varies from a low rate of $25, all the way up to thousands of dollars. The decision should be based solely on the amount you wish to invest and if the face value of the bond sparks your interest.

Are you wondering about paper bonds? Well, since this generation has sparked quite an interest in the internet, the government finds it best to keep up with the trends. As silly as this may sound, the federal government does evolve its methods with the popularity polls of differing ways.

Also, paper bonds used to be bought for half of their face value; however, the government saw this as a “coupon” and wanted to put paper bonds to rest. As a result, you can currently only purchase personal savings bonds online.

Nonetheless, there is another way to buy a savings bond. If the thought of doing it all by yourself scares you, consider consulting with your local bank. Since specific federal organizations regulate commercial banks, they are allowed to sell savings bonds. Using a commercial bank may be more beneficial because they can lay out a spreadsheet of budget-friendly options for you. They also have access to your personal accounts and can configure the right investment amount for you. Loan officers and other bank employees can help you make the right moves to achieve your long-term financial goals.

Redeeming Your Cash

Now it’s time for the most exciting step of all: redeeming your cash. Not only is this the most intriguing step, but it can also be the most difficult. Cashing in your savings bonds can be done online or at your local commercial bank. Most people prefer to cash in or deposit their checks at the bank. 

Even though the check is sent from the government, there have been many fraud checks within the system that resemble the design of the checks from the Department of Treasury.

If you choose to redeem your money online, then be sure to use the Treasury’s website. How do you decide which way to utilize cash in your bonds? A rule to remember when investing is to stick with the same approach that you began your process with. For example, if you chose to purchase your savings bond online, then cash it in online. Be sure not to cash in before your five years is up unless it is an emergency. You do not want to have to face any consequences, nor have to pay any interest on your investment.

Aspects to Consider Before Cashing in Your Savings Bond

Even though cashing in is supposed to be simple, there are aspects you need to make a note of. First, it is vital to keep track of any investments that you cash in for tax purposes. You need to keep all records of any additional sources of income. Savings bonds are non-taxable. Therefore, it is essential to have proof the income was indeed a bond so that you won’t suffer from any extra taxes.

Another aspect to consider before purchasing a bond is if it is authentic and eligible. Some websites try to “sell” savings bonds that already have a holder. This can make for a very sticky situation. If you decide to cash in a bond that is not yours, there is a high possibility you are going to face the consequences. Are you wondering how to tell if a bond is legitimate or not? Some people despise the thought of purchasing savings bonds online due to the amount of fraud in the industry. However, if you properly and thoroughly do your research, you should be able to find out the details about each bond.

The last and most crucial aspect of purchasing a savings bond is transaction information. You or your agent must obtain every bit of information that relates to your sale. All savings bond sales should come with a transaction number just as if you ordered an item online. If you are unsure how to obtain detailed information about a bond, try visiting the Treasury’s website. It offers a guide on how to get started on your investment journey.

No matter which type of savings bond you decide to invest in, they are both low risk and considered the safest method of investing. A common problem with today is that people are often easily persuaded in a decision. The best way to overcome this aspect is by doing your own research to determine what the best move is for you. Think of investing like a game of checkers; slow and strategic moves win the game. Investigate and discover all the details about particular savings bonds that you are interested in.

If the thought of taking matters into your own hands scares you, then you may reach out to your local bank for some guidance. Never be afraid to ask for help, especially when your hard-earned money is involved. Try not to be too eager when embarking on an investment journey.

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