US Savings Bonds are considered to be one of the safest investments an individual can make to diversify their portfolio. Since there is the muscle of the Federal government behind them, the principal is not at risk. The current bond series are Federal issued properties, there is no state or local taxes accrued. Finally there is a guaranteed rate of return and yield on investment. Investment in Bonds are considered long term strategy, and there are penalties for Bonds to be redeemed too early.
Despite US Bonds sounding perfect there are penalties for early withdrawal of US Savings Bonds. Both the EE Series and I Series bonds are current investment opportunities that mature over a thirty-year period. Once invested the Bonds cannot be touched for a full year. After that year, they can be accessed but if the money is withdrawn, the three months prior interest is forfeited as a penalty. If they are withdrawn after five years of holding, there are no penalties.
Because of the penalties associated, if you redeem your Bond too early, people should seriously considered their long-term financial goals before shifting their money into these types of investments. A three-month interest penalty can be a significant amount of money to lose.
Since bonds work on a compound interest rate, there is very little money that can earn at a significant rate of return over time. If at all possible, you should avoid redeeming Bonds too early. Not only because of the interest that would be lost, but you will not be able to take advantage of the long term benefits. Of course an emergency is an emergency, and if you need to access the money in your bond investment – the penalties from early bond withdrawal may be worth getting you out of a financial pickle.