Why invest in US Savings Bonds? Its a question that few people consider these days, with everyone pressing their luck gambling with stocks, hoping to strike it rich with that can t lose penny stock. While it may not be as thrilling as the stock market, savings Bonds can play a very important role in your portfolio.
First, lets start off by answering a basic question: What is A U.S. Savings Bond?
Back in the day when only rich people could buy common stock, savings bonds were a very popular long term investment, back when long term meant longer than a few weeks. So while there are plenty of savings bonds options out there, the ones backed by the US government are the best. At its basic level, a savings bond is a promise that if you lend money, you will get it back with interest. The risk is that the entity receiving the money may not be able to pay it off as agreed. With the US government, the risk is minimal. Short of the American government going bankrupt, you will get your money back with interest.
For all intent and purposes, by buying a US savings bond, you are lending money to the government. In these days of huge deficits, its better for the US government to raise money via savings bonds, than to have to go to foreign lenders (who normally charge a much higher rate causing US taxpayers to pay out even more money in taxes).
Whats In It For You?
Its all about the magic of compounding interest. If you were start off with a $1000 initial investment, and made monthly deposits of $50, you would have a nest egg of almost $20 000 after taxes.
Increase the interest rate to 3 and you ll have over $22 000. Think you can put away $100 a month? Say hello to over $42 000. There are also some tax benefits regarding education savings that you ll want to look into.
These may not seem like huge numbers, but, its a lot larger than your own bank account is receiving. Think about your kids and their education? $42 000 is a large down payment on a great education. An added bonus: you can purchase them at your bank.
For those who don t like risk, you wont find a more risk adverse investment than savings bonds. Each type of investment has its own purpose. If you are looking to put some money away, US savings bonds are among the best investments you can make. If you are looking for a quick buck, this is not going to work for you. If you re a trader like myself, taking your profits off the table and socking them into a savings bond is a great strategy to continue to build your capital, without putting your money at risk.
By buying U.S. savings bonds, you ll help to ensure that your tax bill doesn t have to be higher and know that your money is safe.