SAVINGS BONDS

Photo: allyrose18

Starting Jan. 1, paper savings bonds will no longer be available for purchase, according to a recent announcement from the Treasury Department’s Bureau of Public Debt. In what is known as an “all-electronic initiative,” the government is making an attempt to reduce costs by switching to a digital format.

Paper Savings Bonds End in 2012

By Casey Bond

It may not be the stuff lively cocktail party banter is made of, but the often overlooked savings bond is making a name for itself as one of the best places to park your cash these days.

Have you ever turned over a couch cushion and found a couple dollars in change or pulled a $10 bill out of the pocket of your jeans while doing laundry? Remember the spark of joy you felt, however small, at finding missing money you didn’t even realize existed? Well, just imagine how you’d feel if you found out the government has been sitting on unclaimed money of yours, too, and all you have to do go get it.

That’s the position thousands of people are in and most don’t even know it. In fact, the government has over $33 billion in missing funds that is waiting on owners to claim. Maybe some of it belongs to you.

There is a plethora of investment options for consumers to choose from. Stocks, bonds, CDs, Money Markets, Treasury Bills are all ways people can make their money earn more money. Some of these choices are marketable securities others are Non-Marketable Securities.

What is a Non-Marketable Security?

Non-Marketable Securities are usually US Savings Bonds, and private shares. Individuals cannot sell these types of securities to another investor. To redeem Non-Marketable Securities the shareholder must work directly with the issuer, per the original terms of the investment.

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?

Ryan Guina is an entrepreneur and writer. He has worked for Fortune 500 companies and served six years in the USAF. He writes about money management and small business topics at Cash Money Life and military money topics at The Military Wallet. You can follow his twitter feed.

Buying gifts for children is fun. It’s even more fun to watch their face light up when they open the toy and spend the next several hours running around the room with their newly found treasure. Sometimes money is actually a better gift for children than toys, clothes, or other items, though.

Nothing makes Grandma and Grandpa less popular than when they top last year’s ugly sweater present with an untouchable investment for your fourteenth birthday: the dreaded savings bond.

As of 2006, according to CNN, the U.S. Department of the Treasury is sitting on approximately $13 billion in savings bonds that have not been redeemed, yet no longer earn interest because they have already reached maturity. Savings bonds, which are not subject to state tax, can earn interest for 30 years.

Bonds are debt securities distributed by authorized issuers (business or government entities) that represent a debt owed by that issuer. Similar to a loan, a bond represents a formal contract between the issuer (debtor) and holder (lender), where which the holder gives money to the business to hold. After time has lapsed (i.e. the bond has matured), the issuer is obliged to pay interest (the coupon) and/or repay the principal. This occurs in fixed intervals over a period of time.

Bonds and often associated with stocks because they are both securities; however, there are a couple of major differences between the two. While bonds offer holders a creditor stake because they are lenders for the company, stockholders have an equity stake, meaning they are owners. Another difference is that bonds are based on a defined term (maturity) because since they are simply borrowing external funds to them to finance long-term investments. On the other hand, stocks are usually held indefinitely since the holder has a more permanent relationship as owner.

Everyone is looking for a safe way to invest their money. People want to ensure not only that their principal remains intact, but that their money earns a high yield and lives up to its fullest potential. One way to diversify your portfolio is to invest in treasury direct bonds and a precautionary measure for bad economic times. Treasury direct bonds have been a way for investors not only to protect their financial interests but to earn a consistent and guaranteed rate of return

By using treasury direct bonds, your money will have the muscle and promise  of the U.S. government behind it. You can rest easily knowing that you will not only get back your initial investment, but the Federal government will also pay you a yield that will be free of state and local taxation, thus enabling you to keep more money in your pocket.

If you are wondering whether Savings bonds are taxed or not, there are general rules that owners of Savings bonds must adhere to. According to the US Treasury website:

• Interest earnings are exempt from State and Local tax
  
• Interest earnings are subject to Federal income tax but can be deferred until the cash in date
  

If bonds are cashed out and the money is used specifically to finance the cost of higher education for an individual, spouse or child, taxes on Savings bonds may be waived. However, it is important for an individual to verify the terms of their savings bonds with their tax preparers to ensure that they are completing their tax information accurately.


The reason that taxes on Savings bonds do not have to be paid at the State and local level is because the U.S. Treasury issues savings bonds. Investors redeeming savings bonds will receive a 1099-INT  form in the tax year of that transaction.