Are U.S. Savings Bonds a Good Investment?

United States savings bonds of varying amounts

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U.S. Savings bonds used to be given as birthday presents and awards for children. They were looked at a good way to set aside money for college or other things. Many people looked at them as a sound investment. The money is guaranteed, plus if you purchase EE savings bonds you do not need to pay taxes on the interest if you use the savings bonds towards education expenses. On the surface, this looks like a solid investment strategy. You purchase the bond for the amount that you want it to be. In the past, you would purchase the bond for half of the face value amount and it would take about twenty years to mature so you could cash it in for the full value.

Are Savings Bonds a Good Investment for College? 

However, savings bonds are not the best investment, even for college. The rate of return is set by the U.S. government and market conditions and it can take up to twenty years for the bonds to fully mature. That is a fairly low rate of return. Some people do not realize that it will take so long for the bonds to earn out and then count on the money to be there much sooner. If you already have the bonds and will need them for college soon, it may be easiest to just cash them out as you need them.

  • College students can cash the bonds at any time.
  • The bonds are often not worth face value until twenty years after they are issued.
  • 529 plans may offer a better rate of return.

What Benefits Do Savings Bonds Have?

Another reason that people choose savings bonus is to protect the money they give to their grandchildren from the parents who may spend any money they can on other things. The law allows the guardian to cash out the savings bonds for a minor, and you may be better off opening a 529 account with you as the trustee on the account for a grandchild if you are planning on helping to contribute to money for a child’s education.

  • Savings bonds are easy to cash at a local bank.
  • You do not need to wait until the bond matures to cash it out.
  • Taxes are due the year that you cash the savings bonds.

What Are Alternatives to U.S. Savings Bonds?

There are alternatives to U.S. savings bonds that will offer a similar amount of security with a better rate of return. You may want to consider looking into CDs or annuities if you want very financially conservative investments. You may also want to consider choosing mutual funds with a solid rate of return. They will offer a better rate of return on your money over time. If you are looking for a way to finance education, a good 529 plan or an education IRA are the best ways to save for education.

Traditional savings accounts may offer more flexibility than a US savings bond. If you are considering savings bonds to give as prizes for contests for young children, you may want to choose a Visa gift card or another type of prize, since it does take the savings bonds so long to mature. It may not help them with their education, but it will be more practical and useful overall.

How Do I Cash a Savings Bond?

If you have U.S. savings bonds, you can cash them at your bank. They will give you the current amount that you have earned on them. You will be required to fill out paperwork because they must report any interest earned over $10.00 to the IRS. The bank will require at least one form of identification, although they may require two if you do not have an account at the bank. There are several different series of savings bonds, although EE bonds are the most common, although you may run across older bonds that you can also cash out.

If you find bonds that are not issued to you, you will not be able to cash them. The owner of the bond is the only one who can negotiate it. If you receive savings bonds as an inheritance you will need to fill out the proper paperwork and settle the estate in order to cash them out. This can be a complicated process, and it can take quite a bit of time. If the savings bonds are old they will continue to earn interest, and you may be able to get more money than the face value. You can also check online to find out how much the savings bonds are worth.

What Should I Do with Savings Bonds That I Currently Have?

You can cash out savings bonds and put them into better investments to earn a higher rate of return. If you plan on cashing out a larger number of bonds, you will need to be prepared to report them on your taxes. Depending on the amount of interest, you may need to plan to pay taxes on them when you file your taxes. If the amount is large, you will need to contact your accountant to see how to change your tax situation. However, if the interest is minimal, more than likely, you should be able to cover the taxes without too much issue.

If you regularly receive interest from dividends or other investments, just add the interest earned to that amount when planning for your taxes.