Investors are currently scrambling trying to find safe ways of diversifying their portfolios and to earn a return for their investments. Treasury direct bonds are an option worth considering after you educated yourself on the advantages of this type of investment.
Treasury direct bonds have been a strong investment strategy since 1935.President Franklin D. Roosevelt signed legislation creating the first "baby bond" and that act had prompted large participation by Americans living during that time. United States Savings Bonds are basically a way for the government to borrow money from their citizens by offering a guaranteed rate of return over a long period of time for the loan. The act of purchasing a treasury direct bond is a way to help finance the needs of the government.
The advantages of treasury direct bonds are:
- Investors are guaranteed a rate of return for their investment
- The rate of returned is competitive to the market
- The principal investment is backed by the U.S. government so your money will not lose value
- The federal taxes due on treasury direct bond do not need to be paid until the bond is redeemed
- If the value of a redeemed bond is used to pay for qualifying educational expenses, federal taxes can be waived
- Since treasury direct bonds are a federal investment, they are not subject to state or local tax penalties
- Treasury direct bonds are super easy to buy
The disadvantages of treasury direct bonds are:
- To reap the full reward of the investment may take up to thirty years of waiting for the bond to mature
- There are restrictions and penalties associated with redeeming treasure bonds too early
- Depending on the type of bond you purchase, the rate of return may not exceed the average annual inflation rate of 3% thus mitigating the interest gains
- The maximum annual purchase for individuals is capped at EE bonds is $15,000 and $30,000 for I series bonds
- To qualify for the educational tax break when redeeming treasury direct bonds, your income must be below a certain level
