Savings Bonds

Adding to your 401k retirement savings with savings bonds is a great way to save money for the future. Savings bonds can be either purchased by you, or given as a gift. Savings bonds also ensure that you will have at least some amount of savings later on in your life for your retirement savings needs.

You may already know a little about savings bonds what you may not know is that there are different types of bonds available. Each type has its own set of rules and also different ways in which they can be used or redeemed.

Types of Savings Bonds

There are 6 month savings bonds, one year savings bonds, tax deferred retirement savings, treasury savings bonds, college savings bonds, children’s savings bonds, education savings bond programs and so many more. Mutual funds can also have investments in savings bonds because they are a good addition to any savings, or investment plan.

Compare Savings Bonds

I Bonds are saving bonds that are low-risk investment, but they are also one of many savings products that is liquid – you can cash them in very easily. During the time that you own an I Bond they earn interest and can also protect you from inflation.

I Bonds can be purchased at just about any local financial institution, bank or credit union, or also through a payroll deduction program.

What can they be used for? I Bonds savings bonds can be used to finance education, supplement your retirement income, or they can be given as a gift to your grandchildren.

With I Bonds, you are guaranteed a real rate of return as they are an accrual-type security. Each month interest is added to the savings bond, and that interest is paid to you when you cash in the bond. They are sold at face value. For instance, you pay $50 for a $50 I Bond, not true with all types of bonds as you will see.

You must own an I Bond for a minimum of one year, it earns interest for 30 years, and there are early redemption penalties. Interest earned is tax-exempt from both State and local taxes, but they are subject to State and local estate, inheritance, gift, and other excise taxes. Interest earnings are subject to Federal income tax, but they may be excluded from Federal income tax when they are used to finance higher education.

Another type of bond is the EE savings bond. They are just as safe and a low-risk savings bond that pay interest based on current market rates. As with I Bonds, EE savings bonds can be purchased at just about any financial institution, bank or credit union, or if available, through your employer’s payroll deduction plan.

EE Bonds can be used to finance education, supplement your retirement income, or even be given as a gift.

Any EE or E savings bonds that were purchased between May of 1997 and April 30, 2005 are set to earn a variable market-based rate of return. While issued after May of 2005 and thereafter are set to earn a fixed rate of interest.

EE savings bonds are also an accrual-type security, having interest added monthly which is paid when the bond is redeemed. However, unlike I Bonds, EE savings bonds are sold at half of their face value. For example, a $50 bond is purchased for $25.

There is a minimum of one year ownership, a 30-year interest earning period, with an early redemption penalty. The Tax Considerations for EE savings bonds are the same as they are for I Bonds.

Last, HH savings bonds. Unlike both the I and EE savings bonds, HH are used only to supplement someone’s retirement income. They are available only in exchange for Series EE/E savings bonds or upon reinvestment of any matured Series H bonds.

As with I Bonds, HH savings bonds are sold at face value. For example, you pay $50 for a $50 bond. HH/H savings bonds pay a fixed rate of interest that is set on the day it was purchased. The interest rate will again adjust to the current HH bond rate on its 10th anniversary on its issue date.

You must own HH savings bonds for a minimum of 6 months, and the interest-earning period is 20 years. Which is very helpful as it extended the interest earning period of other bonds for a possible total of 50 years.

Interest earnings from HH savings bonds is exempt from State and local income taxes. However, they are subject to Federal, State, and local estate, inheritance, gift, and other excise taxes. Its interest earnings are also subject to Federal income tax.

Adding bonds to a retirement savings account can be a wise addition. Because savings bond interest rates are fixed, you can plan more accurately for retirement and then convert some bonds to HH bonds in order to extend your earnings period.

Some of the best savings products can be bonds of any kind, as they are always a good investment. They help to level out a person’s earnings like when stocks go down bonds they go up. Add some savings bonds to your overall investment portfolio today.

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