What Are the Advantages of Buying I Savings Bonds ?

This article guides the reader through the advantages of buying savings bonds and what they can do for you and your finances, to enable the reader to decide if savings bonds are the right choice for their finance.

One of the safest forms of investments today is to buy U.S. Savings Bonds. Government bonds are a solid investment and ought to be included in any good investment portfolio. The I series savings bonds are being sold today, along with the older EE bonds. The new I bonds are better than the older ones because of better interest rates, and there are several advantages that you can have when you invest in them.

I Savings Bonds Have Many Uses

Savings bonds are usually included in most investment portfolios. Because of their being backed by the U.S. Government, they are guaranteed and the principal cannot be lost. I savings bonds give you even better interest and work to counter the effects of inflation, which makes them a sound investment today.

These savings bonds can be used any way you want. There is only a penalty on the last three months of interest if you should cash them in prior to the five year mark. They make a great way to invest in your child's education, retirement, or simply a good way to give a monetary gift to someone that will earn interest.

I Bonds Can Be Purchased for Any Amount

When you buy I savings bonds, you have a choice as to what kind you want to purchase - either paper or electronic. If you buy the paper version, they are available in several sizes - $50, $100, $200, $500, $1,000, and $5,000. The electronic version can be purchased in any amount from $25 up to $10,000 annually, if you buy from the TreasuryDirect.gov website. If you are buying paper bonds from your tax return, however, there is an annual limit of $5,000. The cost of each I bond is the same as the face value.

I Savings Bonds Earns Interest Two Ways

This newer savings bond earns interest two ways, which is a better deal than what the older bonds gave you. Just like other government bonds, this type of bond will earn interest up to 30 years. First, the I bonds give you a stated interest rate when you buy it. This rate is fixed and does not change.

The other way that interest is earned is through an inflation rate. This rate is based on the Consumer Price Index for all Urban Consumers and it is calculated every six months, which means it changes. This inflation rate could be less than zero at times, but it will never cause you to lose money if it does. Obviously, a good economy will yield more interest.

Exempt From State and Local Taxes Another advantage of buying savings bonds is that they are exempt from any state and local taxes. This enables you to keep more of the money in your pocket. Federal taxes will apply, but they are deferred until you withdraw it.

Benefits When Used for Education

One way to reduce your Federal taxes is to use the money from the bonds for some form of qualified education. If you use the money for education - for yourself or a child, etc. - the money used is tax free. The money must be used for educational purposes at an approved school and it must be used in the year that you cash the bonds.

Guaranteed Interest Rate

The two ways that I bonds earn interest was already mentioned, but the fact that the interest is guaranteed needs to be mentioned. Most forms of investment have changing rates of interest, and usually there is no guarantee. In fact, with some investments money can even be lost. Not only is your principal protected from loss, but you also receive a guaranteed interest rate when you buy the bonds. This is why they are always good to have in your investment portfolio, enabling at least some of your investment money to be protected. The I series savings bonds are liquid and can easily be cashed at banks that handle bond purchases. They are intended to be a long-term investment, but if necessary, they can be cashed after one year. If you have the electronic form, you can simply notify the TreasuryDirect.gov website through your account , and authorize them to cash it in and send the money to your personal bank account.

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