In essence, the investor of a US savings bond is loaning the US government his money since it is a treasury security. In keeping with the times, savings bonds are issued both in paper and as electronic bonds.
Pros and Cons
An advantage of savings bonds is that the interest accrued on them need not be reported to the federal government for taxation purposes unless and until they are cashed. An exemption is when these savings bonds are used for the education of the holder, his spouse or his child. Plus, investors are assured of payment since the government itself is the debtor.
One disadvantage is the fact that it cannot be traded by the owner, only redeemed after one year. There are no dividends on the bonds per se, only interests accruing on it, unlike stocks. Plus, if you do decide to have it cashed less than 5 years after its issue date, 3 months worth of interest will be deducted as penalty.
All in all, however, they are great investments for the future, not to mention that it pays to diversify your portfolio with a relatively stable investment than, say, stocks.
Calculate Its Worth
You have to know what you are worth where savings bonds are concerned especially when you want to cash them in. You can either do it the manual way or the electronic way. Of course, the manual way presents more challenge for a math pro. You start by taking note of the savings bond’s face value and the interest rate assigned to it. Then multiply the face value with the interest rate taking into consideration the present or future time you want to cash it in to arrive at the accrued interests. Now, add the accrued interest to the face value, deduct any penalties, and you have the savings bond value.
If that seems like too much of a challenge, you can always log on to the Savings Bonds Calculator of the Treasury Department. You will have an easier and faster time arriving at the final amount, not to mention that it is right on the money, so to speak.
* Access the online savings bond calculator and choose the series to which your bond falls into.
* Enter the issue date of the bond
* Enter the “value as of” date to arrive at past, present or future values
You can build an inventory of savings bonds if you have multiple bonds to calculate values for.
Notes to Remember
Savings bonds are available to US citizens with social security numbers as well as to residents of Puerto Rico. If you are a foreign resident, the company in which you are employed must offer a savings plan for you to avail of the US savings bonds. Also, you must take note that a savings bond issued at half its face value will attain its full face value at the time of maturity while a savings bond issued at face value will double in value at maturity. If cashing it in less than 5 years after date of issue carries a penalty, then redeeming it past its maturity date also carries rewards in the form of yearly interest.
US savings bonds have their value in your investment portfolio. After all, you will be assured of payment no matter the state of the economy.
Source by Mike Singh