US savings bonds

U.S. Savings Bonds are confusing to some investors, but they need not be. They are basically a relatively long term investment in the government of the United States. People buy bonds because it's easy. They can be purchased directly from the Treasury department on line at www.treasurydirect.gov or at most banks and credit unions. They do make great gifts and can be a way to save for a child's education since tax benefits are available if they are purchased for this purpose.There are four types of U.S. Savings Bonds. Series E/EE: these can be electronic or paper. Electronic EE Bonds are sold at face value and are worth full vale when available for redemption. Paper EE Bonds are sold at half their face value and then must mature over 20 years to face value. Both can be purchased in denominations of $25. Both have a maximum purchase of $30,000 per year. You may redeem EE/E bonds 12 months after purchase. If you redeem them within 5 years of purchase, however, you will forfeit the 3 most recent months' interest. After that, you may redeem them without a penalty. They are exempt from State and local taxes, but the interest earnings are reported to the Internal Revenue Service. If the bonds are used for educational expenses, there are tax benefits available. Interest compounds semi-annually for 30 years.HH/H Bonds have not been issued by the Treasury Department since September 1, 2004. However, should you have inherited some from a friend or relative, I will briefly touch on their key points: HH/H bonds were designed to be an income supplement. Interest is paid every 6 months until maturity. Interest is fixed and based on the purchase date. The interest rate can change at the beginning of the extended maturity period [10 years from the issue date]. Interest is reportable for tax purposes in the year it's earned.Inflation or I bonds have been issued since 1998. They came into being as a way for investors to save and protect their savings from inflation. They are sold at face value and the earnings are indexed for inflation for up to 30 years.The earnings rate is a combination of a Fixed Rate : that is announced each May and November; applies to all bonds issued during that time; remains the same for the life of the bond. And an Inflation Rate: that is also announced in May and November; that is based on the Consumer Price Index for all Urban Consumers [CPI-U]; is combined with the fixed rate to determine the earnings rate every 6 months.There is a table at the website www.treasurydirect.gov that shows the interest rate for all I bonds purchased since 1998. The U.S. Government has never defaulted on a Savings Bond issuance, so in that sense it is the most stable of investments. They are a risk-free investment. The interest rates, if the bonds are allowed to grow to maturity, can be as high as 7% for the Series EE bonds. They are a patriotic investment. What could be more of a vote of confidence in your country than to invest in its future by buying savings bonds? Many of us aren't willing to loan a friend money. But we loan our government money. It makes us feel good about our country and ourselves.However, the Electronic EE and Series I bonds take five years before you can redeem them without an interest penalty. The Paper Series EE Bonds take 20 years to reach full maturity. That's a long time to have your money tied up in an investment. But if you are investing small sums, such as $50 a pay period with a view of absolute security for your heirs or helping a child learn the value of saving money and investing in the future of their country, this may be just the investment that suits your needs.