Buying US Savings Bonds
Buying US Savings Bonds
An alternative to buying certificates of deposits (CD’s), saving account and money market funds can be found via US Savings Bonds.
US Series I Savings Bond pay a yield that is tied to the Consumer Price Index and is adjusted twice a year in May and November; the current yield is 0 %, yes you read correctly zero percent.
For those investors looking for an ideal combination of yield, liquidity and safety for a portion of their portfolio US Savings Bonds especially the series I is worth a review.
The US government also offers an E series bond, however it’s a fixed rate for a very long period of thirty years; the current yield is 0.30 % not worth the investment at all.
Savings bonds also offer a tax advantage, interest paid on savings bonds are exempt from taxation at the state level and can be deferred until the bonds are redeemed. A bond holder does have the option though to pay federal tax on the interest earned annually.
With interest rates (yields) being so low on CD’s and money market accounts, holding savings bonds is an attractive alternative.
You may redeem your bonds within as little as 12 months, however if you redeem in less than five years a penalty of three months of interest will be lost.
Bonds issued will accrue interest up to 30 years at which time they will stop paying any interest at all, so it’s best to redeem them after 30 years or sooner depending on interest rates in the future.
You are limited annually to purchasing only $10,000 per individual, couples could buy twice that amount.
Where to buy Series I Bonds
To purchase bonds you need to establish an account online with www.treasurydirect.gov, you are no longer able to purchase them from your local bank or other financial institutions.
Your employer may also offer savings bonds through payroll deductions, check with your employer to see whether the company still offers the program. Your employer will create an online electronic version as paper bonds are no longer available through your employer as well.
Convert Your Paper Savings Bonds Using SmartExchange
If you own paper savings bonds, you can trade them in for electronic bonds in TreasuryDirect, using a program called SmartExchange?
SmartExchange allows TreasuryDirect account owners to convert their Series E, EE and I Bonds to electronic securities in a special Conversion Linked Account within their online account. With a TreasuryDirect account, you enjoy all the benefits of having online 24-hour access to manage your holdings, without having to keep track of paper securities.
Daniel F. Iuculano, AAMS CMFC
Accredited Asset Management Specialist
Chartered Mutual Fund Counselor
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