During periods of high inflation, the spotlight shifts to the products that can help shield your money or minimize the effects of asset depreciation.
It is challenging for many people to decide what savings product they want. You could choose
investments that stand alone from fixed products, such as savings bonds. Our focus today will be on the different savings bonds you can purchase and how long you can keep hold of these products.
Depending on the type you take out, they have different interest levels and withdrawal conditions. Read further so you can establish the difference between the different savings bonds.
What is a savings bond?
Although they are used as financial products to generate a rate of return, some people mistakenly believe that they can be purchased through a bank or other financial institutions.
However, the idea for the first savings bond happened nearly 100 years ago during the Great Depression in America.
President Roosevelt signed legislation that permitted the treasury to provide these bonds as financial products. Once the United States joined WW2, they were remodeled as War Savings bonds.
Ultimately, they were attractive investments, as the American government is the biggest and most powerful in the world. It also has the most substantial financial arm and the biggest, most stable economy. Effectively, you are loaning the money to the government by taking out the bond.
Anything that uses that foundation to provide savings bonds is an attractive proposition. It is a much safer investment with a government guarantee than a private investment in a risky stock or volatile business like cryptocurrency, which can go one of two ways. There are two savings bonds today, so let’s look at them.
Series I bond
The first of the two bonds is known as a Series I bond. You can only purchase them through the US Treasury website. However, you may make a financial decision and buy one of these bonds with your tax refund.
In that case, it is always best to consider several sources and speak to a professional before investing your hard-earned money. Firstly, there are two essential things to remember about Series I bonds.
They have a fixed interest rate that lasts for the entire duration of the bond. A variable inflation rate factored in is adjusted twice a year to ensure you are not losing money on your original investment due to high inflation. You are also protected against deflation.
A Series I bond has a 20-year initial maturity plus an additional decade, which gives it a total lifespan of 30 years.
Series EE bond
While you may not see the same level of investment in a bond as you do in some highly volatile assets, Series EE bonds come with set guarantees that make them a genuinely decent prospect for people who want to have a safe and reliable source of investment that appreciates and helps top up their savings.
For example, a Series EE bond allows you to double your investment, guaranteed by the initial terms of the bond you sign. In times of high inflation, a Series EE bond may feel like a wise move. However, there are other things to consider too.
Firstly, the market limit is $10,000 per order during the calendar year. So, the onus is on the person who invests in the bond to keep it appreciating as much as possible. Ultimately, you are rewarded for keeping your money in the bond longer.
For this reason, there are penalties to put people off cashing in early. Investors who cash in within five years have three months of accrued interest payments stripped from their assets as part of a penalty. Much like the Series I bond, these bonds have a lifespan of 30 years.
Conclusion
Deciding on the type of savings bond that is best for your savings is a decision only you can make. It is a good idea to ask for advice from professionals who work in finance and are qualified and authorized to provide you with such advice. You shouldn’t only take guidance from internet articles, like this one, that are not meant to constitute financial advice.
The ultimate goal is exploring options and giving yourself the necessary knowledge to make the best decision. Unlike savings accounts with your bank or investment funds with an asset management company, bonds are straightforward and it is a relatively simple decision.
Consulting friends and family and a specialist will equip you with the information you need to devise the appropriate investment strategy for your savings.
