What Are Savings Bonds

You may have some money, which you would want to invest and keep it for your old days and your close friends are asking you to put your money in saving bonds but you have no idea what are saving bonds. Saving bonds are an interest-bearing bonds that are issued by the federal government of the United States. Saving bonds are different from other bonds because it is not traded in the securities markets and it is not transferable once purchased. More often than not, these saving bonds are sold at lower than their face value, allowing interest to accrue over a period.

Saving bonds represent government obligations and it is considered as the safest investment in the world, which have a very low risk. Although their rate of return tend to fluctuates depending on the interest rates and inflation data, it is still one of the favorite investment option for people who are afraid of risks.

The saving bonds were created by the United States government in order to finance America involvement in World War I. There are two types of savings bonds that are still available up until today. They are the series EE and series I bonds. The series EE pass a rate of interest that varies periodically. It is calculated as 90% of the average yield on five-year treasury securities for the past six months. Every six months, the average yield of a five-year treasury security will be calculated, if the result comes out to five percent, the new yield on series EE bonds would be 90% of that.

Ever since May 2005, the series EE bonds now pay a fixed rate of interest. The series EE bonds can only be purchased by an individual and not by any investment or financial organization. The interests of saving in the bonds will be calculated monthly and it will not be paid until the bond is redeemable, which is the time when the interest becomes taxable.

The series I bonds on the other hand are the more popular bonds that is commonly issued by the government. Their yield fluctuates but it is based partly on inflation rather than interest rates. The other part of interest paid on series I bond is a fixed rate that stay constant over the lifetime of the bond until you redeem the bonds.

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