Are Savings Bonds Still Valuable?


Regardless of whether they’re for someone else’s savings plan or to help your own investment portfolio, savings bonds are still valuable — as long as you don’t need the cash right away.

The Basics of Savings Bonds

According to a July 2015 article on Bankrate.com by Chartered Financial Analyst and Certified Financial Professional Dr. Don Taylor, savings bonds are still a viable option and practical gift often given by grandparents who want to help their grandchildren save for their education or other purposes.

Regardless of whether they’re for someone else’s savings plan or to help your own investment portfolio, savings bonds are still valuable — as long as you don’t need the cash right away.Taylor notes that there are two types of savings bonds: Series I and Series EE. The latter is required by law to double in value over 20 years with a fixed rate, but it must be held for the full term before the bondholder can cash it in and receive said value.

“Series I savings bonds pay a fixed rate plus a variable rate. It’s the variable rate that’s tied to inflation. The fixed rate stays the same over the 30-year life of the bond,” says Taylor. Additionally, Series I bonds can be cashed in at any time.

However, savings bonds are not as appealing as they once were, as they continue to offer low interest rates.

“Gone are the days when you can earn 5 percent interest on new bonds, as new savings bonds are earning as little as 0.1 percent. Also, they are no longer sold at a discount to their face value by the government,” reports a June 2016 article from U.S. News Money by contributor Matt Whittaker.

Still, grandparents and investors alike are purchasing savings bonds as part of an investment or savings plan, demonstrating a positive value in the market overall.

Benefits of Savings Bonds

Whittaker considers savings bonds to be safe assets, as they are not subject to the volatility of capital markets.

For example, savings bonds are still tax-free until you cash them in, unlike with U.S. Treasury notes. And the interest earned may not be subject to federal income tax if the savings bond is used for qualifying higher education purchases.

Additionally, fixed income strategist Karissa McDonough recommends that those who want to diversify their portfolio can use savings bonds and that a portfolio made up of 60 percent stocks and 40 percent bonds, for instance, should include savings bonds as one-fourth of the total bond holdings.

Savings bonds can even count toward your household asset liquidity, as they are considered cash equivalents after being owned for a year, says Financial Expert Kathy Williams, a senior vice president and senior wealth strategist for Waddell & Associates.

So while not the one-stop shop for savings they used to be, savings bonds are still a viable option to help grow your assets.

Just be sure to consider all investment options at the time of purchase. A common downfall with savings bond buyers is that they use up their funds and then miss out on the opportunity to invest in something with a higher return, McDonough warns.

And if you are planning to buy a savings bond for a youngster’s college fund, make sure the savings bond is in the name of the child’s parent and not the child, Taylor advises. Otherwise, when the child goes to cash in the bond for a qualified higher education purchase, the bond won’t be eligible for education tax exclusion.

Your best return on a savings bond investment is to wait until the bond fully matures before cashing it in, so if you aren’t looking for a quick turnaround and can let a bond grow without touching it, then it still holds positive value.

 

Related Articles

Leave a Reply