Savings Bond – The Government’s Extra Income

The real purpose of the savings bond is for the government to get people to lend it money. In financial jargon, a savings bond is a treasury security. Different forms of savings bonds can be acquired, either as the physical paper form or in electronic format.

Because a savings bond is a loan to the government, it is typically designed to motivate the investor to keep the bond for a longer time before selling it and reaping the benefits of the accrued interest. This also explains why there are certain minimum periods defined for keeping the bond before selling it and also penalties in terms of reduced interest for selling too early.

The government has issued a number of different series of savings bonds, each series being designated by a letter or two letters. The first savings bond was the Series A bond in 1935. Subsequent issues of bonds have been variations on the same theme. Each new bond is designed to raise money for the government in a certain way. Thus, for example, the I bond was designed to interest not just the professional investor but also the general public by giving protection against inflation. Interest for this savings bond is calculated among other things according to the rate of inflation.

After the events of September the eleventh 2001, the government also issued a “patriot” bombed. This bond, issued as a direct request from Congress, not only allowed the government to finance more of the effort required to combat terrorism, but also gave the ordinary U.S. citizen the possibility to show their patriotism at the same time as making a good investment. The same idea was applied during World War II with another series of bonds.

An investment is good when the return is significantly more than the outlay and when this happens within a reasonable amount of time. So how can you calculate the value of an investment made with savings bonds? First of all you need to know how much it costs. If you already bought bonds or had bonds bought in your name, then the first information you need is the face value of the bond. The next information is the interest rate that applies to the bond. The higher the rates, the more valuable the bonds will be for you when you come to cash in.

Cashing in a savings bond can take varying amounts of time. It is not possible to calculate an exact maturity date for U.S. savings bonds. The reason for this is that the dates will vary according to the variable market interest rate that has been defined for the bond. If the market rate goes up then the maturity date for the bond will arrive that much sooner. As a representative example for savings bonds, the Series EE bond is typically estimated to be redeemable within less than twenty years of its purchase at which time it will have reached its full face value as a savings bond.