Chances are, even if you have never received a savings bond in your name or had anything to do with them, you probably have some idea of what a U.S. savings bond is. If not, it’s okay; they seem to be dwindling in popularity as of late, as fewer people are educated every day on the benefits of a U.S. Savings Bond. If you aren’t really sure what a U.S. savings bond is and how they may or may not have a place in your life, read on for more information.

US Savings Bonds – Savings bonds are a type of long term investment that used to be rather popular. There are a whole slue of different types of savings bonds out there, but this type of savings bonds are by far the most reliable, being backed by the United States government in quality and guarantee, and that is something that definitely plays on the positive side of the U.S. savings bond. In all actuality, a savings bond of this type is actually a loan to the U.S. government and the bond itself is a guarantee that the ‘loan’ will be paid back in full after a set period of time during which the bond will mature.

Where Can U.S. Savings Bonds Be Obtained?

A great place to buy a savings bond is at your local bank. The most popular type of US Savings Bond are the Series EE which can be purchased at half the face value. So a $100 bond would cost $50. The minimum purchase is $25 while the maximum is $30 000 (although, you can purchase an additional $30 000 electronically). These types of bonds earn market based rates which change every 6 months. As such, there is no way to predict when it will reach its face value. These bonds much also be held for a minimum 12 months.
The other type of US Savings Bonds are the I Bonds which are an accrual type investment. Simply put, interest is added to the bond on a monthly basis. The rate of interest is determined each May and November and is based on the Consumer Price Index.

When Can I Cash in My US Savings Bond?

Depending on the type of bond you purchased, the maturity date will differ. Knowing your savings bond before you buy is always a smart move. Since you purchase your I Bond at face value and receive interest annually, you can cash in any time after the 12 month period after you initially bought. However, its important to remember that if you cash in your I Bond within the first 5 years, there is a 3 month interest penalty. This is to encourage long term savings. As for the Series EE Bonds, if you hold til maturity, you do not get interest on your investment after that period. So remembering your maturity date is key. You can cash in your Series EE Bonds any time after the first 12 months after you bought them.

There is of course that little annoying thing called taxes! There are some tax advantages to owning US Savings Bonds, so it pays to ask your bank about them. If you are looking for a long term investment vehicle, that will help protect your hard earned money, then US Savings Bonds are for you. You don’t have to own all savings bonds or all stocks. A mix depending on your age is always a good bet.

Check those maturity dates.

Sometimes people hold U.S. Savings Bonds past the date of final maturity. That’s a problem. In fact, it’s a violation of IRS statutes. If you hold these bonds after the date of final maturity, it opens the door to a possible tax penalty and/or fine for you. IRS Publication 550 states that once that savings bond passes its final maturity date, the interest accumulated over the life of the bond must be reported on that year’s federal tax return.

What should happen.

You are supposed to pay tax on a U.S. Savings Bond in one of two ways. Most bondholders choose to defer the tax until the bond matures. They redeem the bond and then report the interest through a 1099-INT form. Some choose to pay the tax annually prior to cashing the bond in, by reporting the increase in the value of the bond as interest each year.

What happens instead.

People hold the bonds too long and have to pay a lump sum and sometimes penalties in light of what the IRS considers under reported unearned income.

What if you held a U.S. Savings Bond too long?

Well, if it has been less than three years since your bond stopped earning interest, you may be able to file an amended federal tax return without being penalized.

What if more than three years have passed since your bond earned interest? The sooner you cash it in and report the interest, the better. The longer you wait to cash in the bond, the longer it is not earning interest and the larger the penalty you could face.

Plan ahead and keep track.

Savings bonds can prove quite useful to a retiree looking to improve cash flow. When you cash in a bond, or even multiple bonds, the “cash infusion” may help you put off withdrawing assets from another retirement account. Also, these bonds are exempt from state and local taxes.

You want to keep track of the maturity dates, the yields and the interest rates on your bonds, as that will help you to figure out what bond to redeem when.

Do you own a Series E U.S. Savings Bond? You might want to check on its maturity date. Another useful website is Treasury Direct, which provides records of most registered U.S. Treasury notes and bonds issued since 1974.

This report was prepared by Peter Montoya, Inc.  Securities offered through LPL Financial, Member FINRA/SIPC.

Features of Bonds

Investing in a bond is the same thing as loaning money to the issuer of that bond. As with any loan, a bond carries an interest rate and a maturity date when the loan must be paid off. Where a bond differs from an ordinary bank loan is in the payment of interest, which takes place twice a year, and in the repayment of principal, which happens only at maturity. Because the interest to be paid is fixed at issue and is paid on a regular schedule, bonds are called Fixed Income Securities.

Bonds are considered less-risky investments than stocks because the principal is paid back at maturity, but the level of risk depends upon the credit quality of the issuer of the bond, which is a reflection of the likelihood that the issuer will pay back the principal in full at maturity. There is also risk from changes in the market interest rates, which may diminish the price a bond will bring if it must be sold prior to maturity. Changes in interest rates also may mean the bondholder is receiving a lower than market rate of interest income.

Types of Bonds

Bonds come in a variety of maturities. Interest-bearing securities with maturities of one year or less such as Treasury Bills, Commercial Paper and Banker’s Acceptances are not called bonds. Maturities of two years through nine years are called Notes, and maturities of 10 years and longer are called Bonds. However, many people refer to all Fixed Income Securities as bonds.

Treasury Bonds

U.S. Treasury Bonds are issued by the United States Treasury and are considered the highest credit quality possible, because the U.S. government can print money to pay the interest and principal. The interest income from these bonds is not taxable for state income-tax purposes. Even though they are the safest bond investments, they are still subject to market-rate risk if they must be sold before maturity.

Corporate Bonds

Corporate Bonds are issued by corporations and can be of high credit quality (AAA or Aaa), medium credit quality (BBB or Baa) or low credit quality (CCC or Caa or below, called Junk Bonds). The interest income from these bonds is fully taxable. These bonds are subject to risk from credit quality as well as market rate.

Municipal Bonds

Municipal Bonds are issued by states and municipalities and carry credit ratings similar to corporate bonds. The descriptions of these bonds indicate what the funds will be used for and are often an indication of risk. General Obligation (GO) Bonds are normally issued by the state and carry a higher credit rating because of the taxing power of the state. Some common types of Municipal Bonds are Revenue Bonds, Tax Anticipation Notes (TAN) and project financing for schools, utilities and highways. Interest income from these bonds is not taxable for federal income tax but may be taxable for state income tax. These bonds are subject to risk from credit quality as well as market rate.

Mortgage-Backed Bonds

Mortgage-Backed Bonds, or Pass Throughs, are different from straight bonds because they pay principal and interest at regular intervals during the term of the bond and do not pay back the principal in a balloon payment at maturity. Like Corporate Bonds, their credit quality may differ depending on the issuer, but GNMA carries the full faith and credit of the U.S. government, which makes GNMA securities as safe as Treasury Bonds. FNMA and FHLMC had been considered moral obligations of the U.S. government, a slightly lower credit quality than GNMAs, but as a result of the credit crisis that began in 2008 they were given the full faith and credit guarantee and now rank equal to Government Bonds, though a future wise investor should always check that this guarantee remains in effect. These bonds are subject to market rate risk if they must be sold. They also decline in value over time as they begin to return more principal than interest.

How to Buy Bonds?

The easiest bonds to buy are those issued by the U.S. Treasury because these are always available for purchase through your bank or online at the Treasury Direct website. Municipal Bonds are normally available for purchase through large banks, brokerage firms and, in the case of some states, online through a website maintained for this purpose. Corporate Bonds can be purchased through a brokerage house.

Advantages and disadvantages

One of the advantages of savings bonds, the accrued interest should not this reported to the federal government for tax purposes until they are redeemed. The only exception is when theseSavings bonds are used for the education of the owner, his spouse or his child. In addition, investors are guaranteed payment, as the government itself is the debtor.

The disadvantage is that they are not traded by the owner redeemed after one year. There are no dividends from bonds, per se, but only interests have been incurred, as opposed to stocks. Additionally, if you choose to have redeemed less than 5 years from the date of issue, will be deducted 3 months worth of interest, such asPenalties.

All in all, but they are great investments for the future, not to mention that in its portfolio with a relatively stable investment than, say, pays for diversification of resources.

Calculating value

You have to know what it is worth when the savings bonds are particularly vulnerable when they are in you can use the manual way or another, money will be electronically. The course manual is a greater challenge to pro-mathematical. StartGiven the face assigned to the value of savings bond interest rate. Then multiply the value of the nominal interest rate, taking into account the current or future time, if you want to make it enter into interest payments. Now add the interest accrued from the nominal value, deduct the penalty and you have savings bonds value.

If it seems too big a challenge is not always possible to log on to your savings bondsTreasury Department. You will have easy and fast time of arrival of the final amount, not to mention that it is right on the money, so to speak.

* Access to the online calculator and select the savings bondseries, which consists of bonds.

* Enter the date of issue of bonds

* “Value” enter a date to come to past, present or future value

You can build time savings bonds if you have multiple bonds to calculate the valuefor.

Notes Note

Savings bonds are U.S. citizens social security numbers, and for the people of Puerto Rico. If a foreigner, a company that employs you want to be plan for the use of U.S. savings bonds offersavings. One can also conclude that the savings bonds issued in the middle of its nominal value, their total nominal value of the time needed to reach maturity, and savings bondsissued at face value is doubled at the end of its duration. If you realize in less than 5 years from the date of the exhibition introduces a penalty, and then redeem its past due time, it also bears the rewards in the form of annual interest.

U.S. Savings Bonds have their value in their investment portfolio. In the end you will be guaranteed payment, regardless of the state of the economy.