Savings bonds have been a staple of the investment world for over half a century. While they are more prevalent in certain countries than others, the idea is to gain a steady stream of investment income by using your own money to buy a bond backed by the government.
The whole premise is that you lend money to the government and they use your money to invest, and pay you back marginal gains. As these products are underwritten and guaranteed by the government, they are considered one of the safest investment products you can take out.
Most investors are cautious with their own money, and rightly so. With so many specialist products on the market and so many different terms and conditions to understand, a retail investor who simply wants a modest, reliable and consistent return on their investment can easily be misled.
How do savings bonds work?
We must set this distinction early in today’s article. Even though we have been through precisely what the concept is in our introduction, there are two different types of bonds that you can currently take out in the United States – both of which are available on the Treasury website.
The two savings bonds available in the United States are Series EE bonds and Series I bonds.
However, you can also buy specialist bond products from certain financial institutions that look to offer you a bond in a similar fashion. The two bonds provided through the Treasury are those that investors will look to place their money into.
Is it just businesses that can invest?
No, any US citizen can invest in a savings bond. However, you must know a few terms before investing your money. It would be best if you sought a varied range of opinions and the advice of a financial professional who can help steer you in the right direction before you put your money down.
A Series I bond is designed to stay ahead of inflation and help protect you from the negative impact of inflationary pressures. But, of course, you are covered in the event of deflation, too.
One of the main concerns for people with investments and savings is that their assets depreciate during periods of high inflation. Inflation has been relatively under control over the last 25 years, however, it has spiked over the previous 18 months, especially in the United Kingdom.
The impact has also been felt in the United States, but it is nowhere near as severe. As a long-term investment, bonds will have a lifespan of 30 years. Usually, if you withdraw your funds early – within the first five years – you will receive a penalty.
You can invest anywhere up to $10,000 but be aware that the maximum is $15,000 per person (the additional $5,000 is what you may purchase with your tax refund).
Are savings bonds safe to invest in?
No investment is truly safe, but a savings bond is much safer than other investments like stocks or cryptocurrency, which are far more volatile. You only need to look at some recent news in the cryptocurrency world to see how dangerous it can be to get involved in that particular market.
Irrespective of whether you use a cryptocurrency wallet or you keep your cryptocurrency on an exchange, you will feel the full effects of market volatility in the event of a market downturn.
Savings bonds are specifically designed to shield you from the scarier aspects of the market. If there is any economic uncertainty, you can rest easy knowing you are earning some interest on your hard-earned savings.
As savings bonds are backed by the US government, unless there is a catastrophic issue with the Treasury, the US dollar or the government, your bond is guaranteed to produce a small annual return for you.
Yes, anybody can invest in savings bonds, but you need to know the per-person limit and the penalties you may incur if you draw on your investment within the first five years of its lifespan. Performing research before you invest in any product is vital to ensure you are not in for a rude awakening further down the line.
You can check out plenty of other savings and investment options through private providers and banks, who often have hundreds of products and funds you can consider investing in. It is crucial to ensure you weigh them all before deciding – we cannot overstate the importance of speaking to a professional who can assist and guide you appropriately.