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If you are a conservative investor, who
is looking for a secure investment tool but reluctant to put your
capital in CD or savings account, look no further. You can invest your
money in the US Treasury savings bond, as it provides a better average
return compare to CD and it is backed by the US government for its
security.
What is a US Savings Bond? It is a type
of loan certificate issued by the US government with promised coupons
and principal to be paid back upon the maturity of the loan. The main
advantage of buying the US savings bonds is the chances of default is
extremely low. Therefore, people who concern about whether they would
get back their capital should buy US savings bonds.
How do US Savings Bonds Work?
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Interest Rate. Depends on the
market condition, especially the bonds bought before 2005. Interest
rate varies for bonds which are bought before 2005. After 2005, US
savings bonds earn fixed rate of return. Fundamentally, interest rates
of the savings bonds are somehow competitive.
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Rules of Redemption. Generally,
you need to hold the savings bonds for 1 year after the issue date. You
can cash in the bond after a year. However, you will be penalized with
last 3 months interest if the redemption is made less than 5 years from
the date of issue. Redemption is made simple. You just have to go to
commercial banks and provide the necessary identification prove to cash
in your savings bonds.
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Tax Benefits. As a bondholder, you
enjoy federal tax deferred for the earnings you gain within the term of
your bond. The tax is only payable upon maturity or redemption. The
interest would also be exempted from state and local tax. If you redeem
your bond for the purpose of funding your education expenses, then it
is exempted from the federal tax. The exemption can be extended to
funding your spouse and child's education costs as well.
Overall, US savings bond is a very good
investment vehicle as it provides a secure environment with relatively
competitive rate of return.
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