Are Savings Bonds Profitable and Secured
Are Savings Bonds Profitable and Secured
Are Savings Bonds Profitable and Secured
As the name suggests, saving bonds are meant for savings. They are bonds which are issued by the government for either a long term or short term period. The main idea is to lend the money to the government for sometime so that it returns it with interest after the term expires. Although, this looks lucrative, there are clauses which often innocent investors fail to look. Are they secured and profitable? Would you make a better investment in stocks rather than putting money in savings bonds? Here are some aspects which you need to know before you place your hard-earned money on savings bonds.
Low Interest Rates
The bonds are safe no doubt, but they are not very profitable either. The interest rates are very low compared to debentures, stocks, corporate bonds, and similar investing schemes. Just imagine, if you were to keep your entire savings in your current account, it would not give you any substantial yield. Savings bonds are similar to a large extent.
With low interest rates, investors don't buy savings bonds as one of the long-term bonds or investing schemes. They choose the bonds when they want to invest money for a short time say, 5 years or so.
Still, a Preferred Bond
Savings bonds are still purchased by people of all age groups. Why? The bonds are secured with proceeds that are assured. Many young and the old don't want to take the risks of investments. They would prefer low interest rates but assured payments.
Moreover, stocks, insurance bonds, and even corporate bonds have to be sold through brokers. Some investors, who don't know the tricks of financial services and investment techniques, don't want brokers to meddle with their money. Savings bonds can be sold or bought without the influence of brokers.
Savings bonds are also exempted from tax. As a result, many investors use these bonds to save themselves from tax burdens. In fact, you can redeem the interest only when the bond period is over. With this, you can be exempted from paying tax on the interest. Money accrued from savings bonds can be used for higher education of your children. In such a case, the money would be tax-free.
Points to Remember
Savings bonds are special bonds that are used for special purposes. Remember, savings bonds cannot be transferred even though you might possess the papers. Further, the bonds cannot act as collateral.
You would also lose certain percentage of your interest if you wish to withdraw the bonds within the stipulated time. In other words, your money is blocked for the stipulated time. Remember, you should not buy bonds for a longer period of time.
Many don't look into the inflation clause that can be a major factor in making your savings bonds a profitable one or not. With inflation, a low-interest savings bond would not fetch any substantial earning. To counter inflation, the savings bonds can be bought with an option that includes "Hedge before Inflation". A person holding this type of savings bonds would earn more if inflation is high and earn less if inflation is low.
Easy to buy, easy to sell, no hassles in brokerage and economic downturn, savings bonds are here to stay for a longer time. However, if you are enterprising enough to try different financial investing options, and keen to earn more within a short time, savings bonds may not be just the right one for you.
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