Savings Bonds are modest, safe investments.

These are not marketable securities, so the ups and downs of the economy do not affect them. They are securities issued by the U.S. Treasury and are backed, as they say, by the full faith and credit of the U.S. government.

Tens of millions of Americans have purchased US Savings Bonds. These individuals are loaning money to the government of the United States.

There are three primary forms of savings bonds now issued by United States Department of the Treasury.

The I bond is a savings bond that pays interest based a fixed annual rate and a semiannual inflation rate. Interest is added to the bond monthly and is paid when you cash the bond. These bonds are sold at face value; i.e. you pay $100.00 for a $100.00 bond. Interest on these bonds is compounded semiannually for 30 years. Series I bonds accrue interest based on a combination of the fixed interest rate and the semiannual inflation rate. The composite rate is announced by the Treasury each May and November. These bonds may be redeemed after a period of 12 months from issuance.

Series EE bonds are pay a predetermined fixed interest rate that is set in advance by the U.S. Treasury. When these bonds are purchased in paper format the face value of the bond is twice what you have to pay for it, but it is only worth its face value years after you purchase it. So, if you purchase a $2000 savings bond you only have to pay $1000. When purchased electronically, the bonds are sold at face value. The interest rate is fixed and is also compounded semiannually for 30 years. The series EE bonds may be redeemed after a period of 12 months from time of issuance.

The Patriot Bond rounds out the present offering of savings bonds by the U.S. Treasury. These bonds are almost identical to series EE bonds; they differ in that they have the phrase “ Patriot Bond” inscribed on the bond. These bonds are sold in paper form and therefore are sold at ½ the face value. The interest rate is fixed and is also compounded semiannually for 30 years.

However, there are more varieties of savings bonds that have been issued previously and are still in circulation. Some of these bonds have long maturities of up to 30 years. Others compound your interest at different rates, but typically the interest is compounded at glacial rates of twice each year.

The purchase of savings bonds is considered by many to be an act of patriotism. This goes back to World War II when civilians purchased bonds to support the war effort. Today, savings bonds make up a very small percentage of the total US debt, perhaps 3%.

Unlike most investments today, the savings bond is still primarily sold as an actual piece paper. In 2004 the US Treasury began a program of electronic bonds that eliminated the physical paper, and today they have a program that allows investors to transfer their paper bonds to electronic bonds. Tradition holds sway, however, and most bonds purchased today are still paper bonds.

If paper bonds are lost, stolen, or damaged, no worries. US savings bonds are registered securities, meaning that your investment is on record with the US government. You can’t lose.

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