How Do Savings Bonds Work?
I am sure you have seen Savings Bonds offered at your bank or financial institution but you may be wondering How Do Savings Bonds Work?
A savings bons is a security that is issued by the US Treasury Department. This means that the government can use your money for dunding and in return they pay you interest.
Savings bonds are generally considered a safe investment and for a safe investment offer relatively high interest. The interest rate varies depending on the economic conditions which sadly mean they are fairly low right now. However they can still be a great long term savings plan. The Bureau of Public Debt’s website gives current and historical savings bonds interest rates.
One other advantage is the possible tax advantages. Depending on your situation this could save you a lot of money.
They don’t pay periodic interest that is governed by income tax. So they increase in value over the years. This means you can get the interest income when you cash in the bonds or they have matured (often 30 years after opening).
- Image via Wikipedia
The Education Savings Bond Program also gives you the chance to cash in your Bonds for some Higher Education Expenses that may be eligable to be excluded from taxes.
Another thing about the interest is that it is exempt from local and state income taxes.
So the idea is basic and the benefits for learn term savings are fantastic. If you have enough cash to put a little away each month this could be the best option for your savings.
