What Is a Savings Bond

A U. S. savings bond is, essentially, a loan to the government; you purchase it at a certain price (usually half of its value at maturity), then the government pays it back, with interest. It's guaranteed by the government, and for this reason, it's often considered a particularly safe investment. Investors looking at the piles of debt the government has accumulated may question that, but the fact remains, these investments are considered some of the safest out there; take that for what it's worth. A savings bond will never lose value, the way stocks might, although it doesn't grow at quite the same phenomenal rate as stocks do. And there's a limit to how much you can earn with them.

You won't get rich off of these bonds. Their return of investment is notoriously low and notoriously slow, especially with interest rates at their current forty year low. A Series EE bond can take as long as twenty years to mature (or, reach the point where you can 'cash it in'). It doesn't sound so appealing, does it? *But*, and this is a huge but, consider this: if part of your investments were in Series EE bonds a few years back, then when Wall Street crashed (remember that?), at the end of the day, you had something left. Not much; not anything that you could call 'wealth', but something. And that's more than people who invested solely in stocks can claim.

So should you consider this investment? The answer is an unequivocal *yes*. There's a concept you're probably familiar with in investing; diversity. These investments shouldn't make up your entire portfolio, but they should definitely be part of it, along with stocks, possibly some real estate, and other investment options. Talk with your financial advisor to determine what options are best for you and your individual needs. But a bird in the hand is worth two in the bush, as they say, and Series EE or Series I savings bonds are a bird in the hand; a small bird, but a bird nonetheless. Stocks are like a whole flock of birds perched happily in the bush; if you can catch them, bully for you, but they've got a nasty habit of flying away when you least expect it.

Earlier, we mentioned Series EE and Series I bonds. What, you may be asking, are the differences? Mainly the rate of return. Currently, Series EE have a fixed interest rate; no chance of them maturing faster because the interest rate went up. That's bad news. Of course, there's also no chance of it maturing more slowly because the interest rates went down. Series I bonds are calculated a bit differently; their interest is made up of two parts, one fixed, one variable, so that they can fluctuate, but never below a certain point. This makes Series I bonds a much more appealing option at this point in time.

Ultimately, which bonds you choose will be determined by what you and your financial advisor think is best for you. But whichever you choose, remember that a savings bond should and must have a place in your portfolio if you're looking for safe, long-term gain.