I'm busy working on my blog posts. Watch this space!
Should You Invest In Savings Bonds?
September 8, 2017
Many Americans like to purchase savings bonds as birthday gifts for their children or grandchildren, but are they really a good investment? Some people think that if they buy them as gifts when their children (or grandchildren) are young, it would be a good way to set aside money for their college education. Americans often think of savings bonds as a sound investment since the money is guaranteed. In addition, if you purchase EE savings bonds you do not need to pay taxes on the interest if you use the savings bonds towards education expenses.
This may look like a smart investment strategy since the bond can be purchased for half of it’s face value keeping in mind that it will take 20 years for it to mature to its full face value, but does this mean that savings bonds are a solid investment plan for saving for college?
The answer is “no.” Although savings bonds are a low risk investment, they are not the best investment for a college saving plan. The rate of return is set by the U.S. government and market conditions. Due to the fact that it can take up to twenty years for the bonds to fully mature with a low rate of return, savings bonds will not grow at the rate you would need to pay for college. Many Americans purchase savings bonds because they are safe, but do not realize it takes a long time for the bonds to fully mature and they count on the money earlier. If you are truly looking to build a college fund, 529 plans offer a better rate of return on your investment.
One reason some Americans choose savings bonds is to prevent someone else getting the money. Often grandparents purchase savings bonds to give to their grandchildren from parents that will spend the money on other things. However, the law allows a guardian to cash out the savings bonds for a minor so this may still not be the best choice for grandparents hoping to help their grandchildren go to college. They would be better off opening a 529 account and having themselves listed as the trustee on their grandchild’s account, in order to help with their education.
Savings bonds are easy to cash at a local bank and you do not need to wait until the bond matures to cash it out. If you have U.S. savings bonds and you cash them at your bank, they will give you the current amount that you have earned on them. The bank will have you fill out paperwork because they need to report interest earned over $10.00 to the IRS. You will need to provide with at least one form of identification (you may need 2 forms of identification if you do not have an account at the bank).
You will not be able to cash savings bonds if they are not issued to you. Only the owner of the bond can cash it out. If the savings bonds are received as an inheritance, you will need to fill out the proper paperwork and settle the estate in order to cash them out. This can be a complicated process, and it can take quite a bit of time. If the savings bonds are old they will continue to earn interest, and you may be able to get more money than the face value. You can also check online to find out how much the savings bonds are worth. Also, keep in mind the taxes are due the year that you cash the savings bonds.
Although savings bonds are a look risk investment, they may not be the best option for college savings. They have a low rate of return and take a long time to mature. There are other options that are still low risk, but will offer a better rate on return.