Intro: Where to Buy Savings Bonds? Are Savings Bonds a Good Investment?
On February 1, 1935, U.S. President Franklin D. Roosevelt signed legislation that brought into existence a new type of debt security, the Savings Bond. One month after this date, the first Series A Savings Bond, costing $18.75 and with a face value of $25, was issued.
The year 1941 saw the introduction of the new Series E Defense Saving Bond. As these bonds were created to help fund the war effort, they were initially known as Defensive Bonds.
Roosevelt, to convince anyone asking “Are Savings Bonds a good investment?” made the first Savings Bonds purchase himself and called on his fellow Americans to “demonstrate [their] faith in America by joining [him] in investing in the new Defense Savings Bonds and Stamps.”
Today, savings bonds do not occupy the public discourse, so it may not be immediately clear to someone wondering where to get Savings Bonds. This article provides further advice and guidance for anyone wishing to make a Savings Bond purchase.
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Where to buy savings bonds today?
Today, some 80 years after they were first issued, Savings Bonds are considered to be a safe investment, as they are backed, just as they were when they were first introduced, by the “full faith and credit” of the U.S. government.
And today, just as in 1935, when you make a Savings Bonds purchase, you are, in effect, lending money to the U.S. government. But where to purchase savings bonds? An older generation, perhaps used to buying their Savings Bonds over the counter at their local bank, or a younger generation with no idea how to get Savings Bonds, might be forgiven for asking where to purchase Savings Bonds today.
This is because, since 2012, individuals can only get Savings Bonds online from the U.S. Department of Treasury, though they are also offered by many employers as payroll deductions. This article looks at the types of Savings Bonds on offer and provides further guidance for anyone asking where to buy Savings Bonds today. In the final section, once the question of where to purchase Savings Bonds has been answered, we will ask, “Are Savings Bonds a good investment in 2016?”
Types of Savings Bonds
According to the Financial Industry Regulatory Authority (FINRA), the two most common types of Savings Bonds on offer are “I Bonds” and “Series EE Savings Bonds.”
Both types of Bonds are “accrual securities,” which means that interest earned accrues monthly and is compounded semi-annually. The interest accrued is received when the holder decides to sell Savings Bonds back to the government.
One of the attractions of Savings Bonds is their affordability. Investments can be made for as little as $25. This has always been one of the unique attractions of Savings Bonds and means that they are accessible to most savers.
Since May 2005, EE Bonds earn a fixed rate of interest, set each year for new Bonds on May 1 and November 1. Before this date, interest rates on EE Bonds were variable. As with I Bonds, interest earned is subject to Federal Income Tax, but not state or local taxation.
I Bonds differ from EE Bonds in the way earnings are calculated. While EE Bonds sold after 2005 are based on a fixed rate of interest, I Bonds earn a combined rate of interest based on the rate fixed at the time the Bond is purchased, and a variable rate, linked to inflation.
As with I Bonds, EE Savings Bonds, once purchased, must be held for a minimum of twelve months before they can be redeemed. Anyone wishing to sell Savings Bonds back to the government within the first five years after issue will lose the last three months of accumulated interest.
Education Savings Bond Program
One of the attractions of both types of Bonds, and the reason that many people make a Savings Bonds purchase, is that interest earnings may be excluded from Federal Income Tax when used to finance the cost of education.
This is achieved through the Education Savings Bonds Program. The program allows taxpayers to exclude from their gross income some or all of the interest earned on the redemption of eligible Series EE and Series I Bonds.
To qualify for the exclusion, the taxpayer, the taxpayer’s spouse, or the taxpayer’s dependent at certain post-secondary educational institutions must incur tuition and other education-related expenses.
It is advisable to seek advice from a financial expert if you intend to buy Savings Bonds to be used in this way, especially as persons with income over certain levels may not be eligible to participate.
Where do you buy Savings Bonds?
Savings Bonds used to be readily available over the counter at many banks, brokerages, and financial institutions. In 2012, however, banks and financial institutions terminated their sales of over-the-counter Savings Bonds. This means that for anyone asking where to buy Savings Bonds today, the answer is that you can now only buy Savings Bonds online at treasurydirect.gov, via a secure, web-based system operated by the U.S. Department of the Treasury.
According to the website, anyone wishing to buy Savings Bonds online through TreasuryDirect can be assured that the method is safe and convenient, that you will have 24/7 access to your Bonds, and that you don’t need to worry about misplacing or losing them.
Individuals can buy Savings Bonds online up to $10,000 worth of each type of Bond per year, although an additional $5,000 of paper I Bonds can be purchased if you designate your IRS tax refund as the payment method. If Savings Bonds are purchased in this way, then I Bonds are available in multiples of $50 up to the total of $5,000.
How to buy Savings Bonds
To buy Savings Bonds, you will need a TreasuryDirect account and opening an account should take no more than ten minutes. In order to open an account to buy Savings Bonds, any individual wondering, “Where do you buy Savings Bonds?” will need:
- A Social Security Number or Taxpayer Identification Number (TIN)
- An address in the United States
- A checking or savings account
- An e-mail address
- An up-to-date web browser
You can access more information on where to get Savings Bonds online and setting up your TreasuryDirect account here. The TreasuryDirect website offers step-by-step advice on how and where to get Savings Bonds.
Where to buy Savings Bonds via payroll deduction
Another popular method worth exploring for anyone wishing to buy Savings Bonds is via payroll deductions. In this scenario, employees set up a payroll savings plan. This allows employees to make recurring monthly purchases of Series EE and Series I Savings Bonds funded via a payroll deduction/direct debit.
As with direct purchasing, you will first need to set up a TreasuryDirect account before you can begin buying savings bonds through payroll deductions. Once you have an account, the process is quite straightforward and you can begin scheduling recurring direct deposits into your TreasuryDirect account.
To do so, you will need to inform your payroll office of the following:
- TreasuryDirect routing number
- Your ten-digit TreasuryDirect account number
- The amount of your recurring allotment/direct debit
The credits you set up via your payroll office will enable recurring purchases of Payroll Zero-Percent Certificate of Indebtedness (Payroll C of I) to be made within your TreasuryDirect account. Each time your savings reach a certain amount, a Savings Bonds will be issued. As an example, a monthly saving of $10 will, on the third month, result in the purchase of a $25 Savings Bond, with the remaining balance rolling over until the next direct debit is received.
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How to buy Savings Bonds as a gift
You may be wondering how to purchase savings bonds as a gift. Indeed, traditionally, this is one of the reasons many people chose to buy Savings Bonds, especially to commemorate the graduation, birthday, or anniversary of a significant friend or relative. But anyone wondering, “Where do you buy Savings Bonds as a gift?” will learn that they, too, are no longer available over the counter.
As with anyone else making a savings bond purchase, an account must be set up in the usual way with TreasuryDirect. Savings Bonds can be purchased in any denomination in multiples of $25, with the only difference being that Bonds must be held on account for a minimum of 5 days before they are gifted.
The 5-day hold is to protect the Treasury against any loss occurring as a result of funds being moved before the Automated Clearing House debit has been completed.
To make a gift of Savings Bonds, you will need to know the recipient’s:
- Full name
- Social Security Number and/or their Taxpayer Identification Number
- TreasuryDirect account number
When the information has been provided and the transaction has been completed, the recipient will receive an email notification announcing the gift.
It is even possible to buy Savings Bonds for a child under 18. This can be done by delivering Savings Bonds within a Minor Linked account, an account set up within a parent or guardian’s own TreasuryDirect account.
Because it is no longer possible to get Savings Bonds over the counter, TreasuryDirect have developed a series of gift certificates that can be printed off and presented to the recipient before they get their Savings Bonds gift. As well as graduation and birthday certificates, you can also get Savings Bonds certificates to say “Thank you,” to celebrate the birth of a new baby, and even to tell someone “Congratulations.”
How to sell Savings Bonds
For anyone wishing to sell Savings Bonds, the process is relatively straightforward. First of all, it is worth remembering that they should be more than 12 months old, and that if they are less than 5 years old, you stand to lose the last 3 months’ interest. Another point to bear in mind is that Bonds earn interest for 30 years, so that the longer you hold them, the more you stand to gain. Access your account on the TreasuryDirect website, and redeem your bonds there. Once you have authorized the redemption, then the cash should be with you within two days.
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Are savings bonds a good investment in 2016?
But for anyone still asking, “Are savings bonds a good investment in 2016?” it might be worth knowing that the Treasury considers both EE and I Savings Bonds to be solid additions to your investment portfolio. They provide an affordable method of investment that allows your money to grow, and stay safe, into the future.
Others, however, are not as enthusiastic. In 2014, CNN reported that sales of Savings Bonds, running at over 40 million Bonds in 2000, totaled only 400,000 in 2013.
Among the reasons put forward for the decline in sales are:
- Investors are seeking higher yields – interest on Savings Bonds is low (currently at 0.10% for EE Bonds issued from May 2016) relative to some of the “riskier” investment opportunities.
- The unintended consequences of moving online. Anyone wishing to make a Savings Bonds purchase, as highlighted in the introduction, was initially only able to do so over the counter in many banks, brokerages, and other financial institutions. Moving them online in 2012 as part of the Treasury’s ambition to increase the number of electronic transactions with citizens and business, meant that they became less accessible to many older Americans and to those who may not have had experience in navigating an online forum for the purposes of making financial investments.
So are Savings Bonds a good investment in 2016? One way of looking at the question is to recall the parable of the hare and tortoise. Investing in shares, stocks, and bonds with higher potential returns might be preferable to those with a high risk tolerance.
But we have seen, too, what happens when things go wrong – the Great Recession of 2008, in which billions were wiped off the value of investments, is a painful case in point. The value of Savings Bonds would have been relatively unaffected by this economic turmoil, and while the fixed interest gains made might have been small compared to stocks and shares in more successful years, they would have been guaranteed. Perhaps, then, Savings Bonds should be considered a slow-and-steady addition to your investment portfolio.
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