Savings Bonds
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Savings Bonds


Investment was once something thought of as what rich people do. Today, investing plays a key role in the financial well-being of millions of Americans. The Securities Industry Association has stated, “the growth in individual investor participation has risen from 30.2 million U.S. shareowners in 1980 to 84.3 million in 2002.” According to a survey published by the Investment Company Institute and the Securities Industry Association, the latter figure encompasses 49.5 percent of U.S. households. Yet, how many of these investors really know the ropes when it comes to making the right investment decisions? Woefully few, laments the Oregon Department of Consumer & Business Services’ Division of Finance & Corporate Securities, noting that, “Less than one-fifth of those [Americans, who may or may not have been investors] polled passed a simple test asking whether stocks, bonds, savings accounts or certificates of deposit offered the best return over the last 20 years.”

So what can you do to avoid becoming financial fodder when it comes to investing your money? For the conservative investor, savings bonds may be a vehicle for accumulating profits while preserving both capital and a sound night’s sleep.

Savings bonds appeal to investors for a variety of reasons. Savings bonds are backed by the full faith and credit of the issuing government; in the case of U.S. Savings Bonds, this fact ranks them among the safest investments in the world. Canada likewise has an excellent debt rating. U.S. Savings Bonds are free of both state and local income taxes, which increases their effective yield. Since taxes are paid at the time a savings bond is sold, savings bond income is considered to be tax-deferred. U.S. Savings Bonds purchased beginning in January 1990 may be free of all Federal tax if used to pay for a child’s college tuition, subject to parental income level limitations. Finally, U.S. Savings Bonds are extremely easy to purchase through banks, savings and loans, payroll deduction plans or TreasuryDirect. A U.S. Savings Bond can be purchased for as little as $25.

Interest earned on savings bonds is low compared to other forms of investment. A conservative investor, for whom preservation of capital is of prime consideration, may well consider a lower interest rate to be an adequate trade-off for the security and peace of mind achieved by purchasing government-backed savings bonds. Saving for your child’s education or generating tax-deferred income for retirement are other good reasons to consider investing in savings bonds. Keep in mind that savings bonds should be used to supplement a retirement plan rather than as the sole source of income for retirement.


Authored by Kenneth L. Anderson.  Original article published prior to 13 April 2003, updated 13 November 2004.


Follow links to the right to learn more about government-issued, government-backed savings bonds. At the left margin, Related Links address topics of interest pertaining to information, resources and services for investing and trading in the stock, bond, commodity and real estate markets. View the Bond Investing SiteMap for a complete list of stock, equity and bond investing topics.


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