What is a savings bond?

There are so many different types of investments that it can often be confusing and challenging to find investments that you feel comfortable with and ones that you know will be able to perform correctly. Some investments allow you to save for your own retirement while others are focused on helping you to save for your children's educational needs. Savings bonds are a great option for individuals that have the money to help pay for their children's educational needs. To understand how this investment works continue reading.

Your credit union or bank may offer Savings bonds and they are backed by the U.S. Treasury. This means you will be able to retain the money no matter what the situation may be. Investing in anything backed by the Treasury is a very safe investment and will easily be able to add security to an investment portfolio that might otherwise be quite risky.

Investing into savings bonds will allow you to invest in things that are built by the government like new roads, schools, libraries, and other public buildings. It is a great way to invest in your state and in the government and then to have a guaranteed interest amount on the money you invest. What you do need to understand about savings bonds is that they are not transferable nor are they marketable. This means you cannot buy them from another person or sell them to another person. The Government will issue 2 types of bonds, the I Bond and the EE savings bond.

The interest rates on the savings bonds aren't always guaranteed depending upon the bond you choose. Some will fluctuate based on the economic interest rates and they can also differ when you cash out the bond. This does make it slightly tricky to find a good savings bond that you know will pay out in the way you need it to. The EE bond is the one that tends to do this more than the I Bonds. The EE bond is purchased and then sold at a discounted rate, leaving you with a lower face value amount. Interest will accrue on the bond for its duration if you buy the E bonds but you have to hold onto it for years and this isn't always feasible. The I bond is a set rate and it's value won't decrease. The EE bond can also give you a nasty penalty if you cash it out early. To understand more about the types of bonds and their rates visit the U.S. Treasury website.

When you purchase a savings bond it will be subject to Federal Taxes so it is important that you understand what your tax rate is and that you pay quarterly taxes to avoid any penalties. In some cases you are able to defer the tax until you cash out the bond. One nice aspect is you don't have any taxes to pay for your state and local county.

Many people like to use savings bonds for their children. It is a great way to invest money for your kids so they can use it when they go to college. The educational savings bonds can be purchased through your bank or credit union. Check the interest rate and tax advantages to the savings bonds and make sure you are choosing an account you know will benefit your child. This may include the possibility of out of state schools.

The best part about the savings bonds is how safe they are. Any time you are dealing with the Treasury you know you are going the safe route and it can add stability to your investment portfolio.