Finance Blog
Savings Bonds: Pros and Cons
Savings Bonds: Pros and Cons
Roger Wohlner
Over the years, my kids received savings bonds as gifts for various occasions. We held the bonds to maturity and recently turned over the money to the two oldest kids. In both cases, the extra money came in handy. For my oldest, it provided a bit of a cushion between her college graduation and the start of her first job. For the second oldest, we used the money to cover her books and a few other expenses at the start of college.
While they make a nice gift, are savings bonds a good investment? Here are a few pros and cons:
Pros:
- They are safe, insured by the full faith and credit of the U.S. government.
- They can be purchased directly from the government with no fees to a broker or an agent.
- You can invest for as little as $25.
- You can purchase them through some employer-sponsored plans.
- Interest is generally exempt from state income taxes. Federal income taxes can be deferred until the bonds are redeemed.
- If the bonds are used for higher-education expenses, some or all of the interest may be excluded from federal income taxes.
Cons:
- They are relatively illiquid. Generally there are penalties for early redemption, so these are inappropriate investments for short-term needs. This is not a place for your emergency fund.
- You need to track when interest payments are posted. If you redeem a bond just prior to the next interest payment date, you will miss out on that interest.
- You have to redeem the bonds. Millions of dollars in old savings bonds are sitting in safety-deposit boxes gathering dust and have ceased to earn interest.
- Interest rates may or may not be competitive. At times, this can be a pro as well. You will need to look at the rates over time, because a component of the interest rate is variable.
Savings bonds have their place as a savings vehicle for many of us. Be sure to understand when they are appropriate and when there might be a better alternative.
Roger Wohlner, CFP® is a fee-only financial advisor at Asset Strategy Consultants and Retirement Fiduciary Advisors. Roger provides advice to individual clients, retirement plan sponsors and participants, foundations, and endowments.Read More:
Retirement Savings Strategy: Will Your Returns Allow You to Retire on Time?
How Often Should I Update My Estate-Planning Documents?
Should You Use Retirement Savings to Pay Off Debt?
1 comment
Leave a Comment
We welcome your interest and participation on this forum, but be aware that comments will be published at Equifax's sole discretion. Please don't use this blog to submit questions or concerns about your Equifax credit report or raise customer service issues. Instead, you should contact Equifax directly for all such matters and any attempts to do so in this forum will be promptly re-directed.
Some other factors to consider when commenting:
- Registration and privacy. While no registration is required to visit our forum, participants wishing to post a message must register by creating an account. All personal information provided by forum members incident to registration is governed by our Terms of Use and Privacy Policy.
- All comments are anonymous. We'll delete your name, e-mail address, and any other identifying information, including details about your investments.
- We can't post or respond to every comment - As much as we'd like to, we can't post every comment, nor can we guarantee that we will respond to each individual message. All questions or comments about your Equifax credit report or similar customer service issues should be handled by contacting Equifax directly.
- Don't offer specific legal, tax or financial advice. All of the materials on this Site are for information, education, and noncommercial purposes only and this forum is not intended as a means of expressing views or ideas regarding any specific legal, tax, or investment advice. While offering general rules of thumb is both permitted and encouraged, recommending specific ideas or strategies regarding investments, taxes, and related matters is prohibited.
- Credit Repair. This blog is not intended as a venue for the discussion or exchange of ideas regarding credit repair or other strategies intended to assist visitors and community members improve or otherwise modify their credit histories, ratings or scores.
- Stay on topic. Your comment should be concise and pertain to the specific post in question.
- Be respectful of the community. The use of profanity, offensive language, spam, and personal attacks will not be tolerated and egregious or repeat offenders will be banned from future participation. We encourage disagreement and healthy debate, but please refrain from personal attacks on our WordPresss and contributors.
- Finally: Participation in this forum may be terminated by Equifax immediately and without notice for failure to comply with any guidelines or Terms of Use. As such, you should familiarize yourself with all pertinent requirements prior to submitting any response through the blog or otherwise. All opinions expressed in this forum are solely those of the individual submitting the comment, and don't necessarily represent the views of Equifax or its management.
Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.
RSS Feeds
Would holding bonds and using them as a source to borrow from, be a wise thing to do? I am retired and recently widowed and have never handled larger sums of money and this idea has been recommended to me. Your opinion would be greatly appreciated. This website is an excellent source of information, thank you for being there.