Articles - Archived Money Matters

Bonds: A Good, Safe Investment

If you're wary of investing in the stock market, a good place to look is the bond market. Bonds are safe, low-risk investments guaranteed by the federal government. Currently, there are two types on U.S. Savings Bonds available for purchase: I and EE. You can purchase a maximum of $5,000 worth of electronic and paper bonds of each series in a single calendar year, or a total of $20,000.

Paper I bonds are sold at face value in denominations as low as $50 and as high as $5,000; electronic bonds begin at $25. The interest rate on I bonds has two parts: a fixed rate (set every May and November by the Treasury Department) and a variable rate, which can increase or decrease every May and November based on inflation factors within the economy.

Electronic EE bonds are sold at face value in denominations from $25 to $5,000, but paper EE bonds are sold at half their face value (you pay $25 for a $50 bond). Interest rates are fixed throughout the life of the bond.

When purchasing a savings bond, it can be registered to one person, two people or to an owner with a beneficiary. After your purchase, you must hold the bonds for 12 months before cashing them in. Consider your bonds a long-term investment because you lose three months of interest if you cash them within the first five years. While holding the bond, interest is exempt from state and local taxes, and federal taxes are postponed until redemption or maturity. Federal taxes may even be exempt if the bond is used to pay for educational expenses.

Visit your local LGFCU branch to purchase I and EE paper bonds, or www.treasurydirect.gov to buy the electronic versions.