What are savings bonds?

With so many different types of investments out there, it can be challenging to understand all of them and to figure out which ones you need to invest in. There are several types of investments that are commonly talked about like stocks, bonds, mutual funds, real estate, and gold but what about savings bonds? What are savings bonds exactly and are they considered a high risk or low risk investment? This article will help to explain what savings bonds are so you can understand them properly and to ensure that you have plenty of money for your retirement.

When World War I occurred, savings bonds were created in order to fund the war. This is why savings bonds are often called "war bonds". The Federal government will issue them and will provide you with a guarantee on the interest rate for the bond. They can be about 3-10 years depending upon how much you are willing to invest. Many individuals that are nearing retirement will invest into savings bonds because of the interest rate and the guarantee so it can dramatically increase the amount of money that will be available for them when they retire.

Savings bonds are very conservative and considered the safest investment out there. Since they are issued by the government, you don't have a lot to worry about. The rate may fluctuate from time to time but for the most part your savings bonds should be able to provide you with a great return. The other nice thing is that savings bonds also have nice tax advantages to them as they are tax exempt. Only the interest will be taxable when the savings bonds are redeemed.

Now what type of savings bonds should you invest in? There are 3 types to choose from, EE bonds, series I and series HH. Here is a brief overview of the different savings bonds so you know what to expect:

• EE bonds - these bonds will pay you interest periodically. This can provide you with money about 2 times a year. Typically they are 5 year bonds and you are limited to purchasing about $5,000 in bonds. The value of the bond will be able to increase as long as the interest is able to accrue. Once you hit the 5 year or the maturation date you are able to have the interest amount and the initial deposit amount returned to you. You will be subject to federal taxes with the EE bonds.


• I bonds - it is common to hear discussion about I bonds by many financial advisors as it is a great way to spread out your wealth. Typically the I bonds will rise and fall with inflation. They are lasting for 30 years or so and you can buy them for about $5,000. Every May and November the new rates on the I bonds will be calculated so you will be able to see if it is a good investment. The nice thing is that I bonds are constant over the investment period of the bond and a solid investment for anyone that needs to diversify their investment portfolio.


• HH bonds - to purchase the HH bonds you will need to use the proceeds from your matured series EE bonds. There is no limit to the face value of these bonds so it is common to have some that are $500 while others are $10,000 or more. The maturity period is 20 years and the value will not increase only the interest.

Now that you understand what savings bonds are, it is time to start investing your money into them and meeting with a financial advisor to spread out your investments so you can make a nice return.