For years investors having been putting their hard earned cash into US Savings Bonds as they are known as a safe and secure way to diversify investment portfolios and are possibly one of the best insured investments. But what makes them so safe? Is it the backing by the FDIC or is it having the strength of Federal government behind them?
Are Bonds FDIC Insured?
Please note, that according to the FDIC website “Increasingly, institutions are also offering consumers a broad array of investment products that are not deposits, such as mutual funds, annuities, life insurance policies, stocks and bonds. Unlike the traditional checking or savings account, however, these non-deposit investment products are not insured by the FDIC.” This means Bonds are not FDIC Insured.
Should You Invest in Bonds?
Despite not being insured by the FDIC, Bonds are still an extremely safe investment opportunity. Part of the Savings Bonds security is that they are of a low volatility and provide a steady income stream. Plus the capital is not at risk, unlike many other investments out there.
US Savings Bonds are a form of an IOU from the US Treasury. When the government is strapped for cash and need financial resources to fund wars or new programs – they reach out to American citizens for loans. In turn for the investors or “lenders” cash, the government issues a document (either electronically or on paper) that in turn for this loan they will pay you back in full with a certain amount of interest.
For this system to be safe and to continually be working, the government must make good on their debts; thus, ensuring that investors will not only get their original investment back, but will additionally make profit. So even though the FDIC does not back Bonds, there is a safety net in place to make this a “safe haven” for investors’ money.
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