Savings bonds are unique bonds that the U.S. government created to help individuals invest and save money responsibly. They act like other bond securities, functioning with a set term in which the citizen "lends" money to the government through government-created certificates (now mostly created online). Individuals, after the maturing period, can collect their payment back, plus interest that has been generated. Savings bonds can also be held past this collection date to earn extra interest. Depending on the investor, these bonds can make an ideal, safe investment.
Savings bonds are very easy to invest in. They are widely available at nearly any financial institution and follow simple investment rules that do not include any complex caveats. This makes them ideal investments for young investors or those just beginning to experiment with investing. They also have a wide range of investment funding sizes, from only $20 or $50 up to $30,000 for some types of savings bonds. While these are small amounts to businesses that may want to invest millions of dollars in short-term Treasury bills, they are often perfect amounts for individuals who want to customize their investment to their income.
The primary benefit that savings bonds share with all government investments is safety. Savings bonds are very low risk -- no other investments have risk as low as those created by the government, since the government must fail in order for the bonds to not provide returns. For investors looking for a secure type of bond they can depend on no matter what happens, savings bonds are ideal. This is matched by a low rate of return that will not satisfy more aggressive investors.
Savings bonds have redemption requirements based on their type. This often makes them better investments for people who plan on holding onto the bonds for a long period of time. For instance, EE bonds are sold at half their face value and accumulate that face value at their maturity date, when investors can cash the bonds in. Series I bonds are sold at face value, and have a combined fixed and variable interest rate that grow their returns. Both types of bonds can collected interest up to 30 years regardless of the maturity date.
Savings bonds have tax shelter benefits. They do not incur any state or local taxes, and taxes can be deferred until maturity dates. Certificates redeemed on behalf of dependents also incur lower tax rates. Any profit from savings bonds used for education payments is tax-free. These tax benefits can make savings bonds attractive to many investors.
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