But just like anything, savings bonds have its place in the financial world. If you are looking for a way to stash some cash or save for a rainy day, savings bonds may be the way to go.
Types of savings bonds
Savings bonds are sold as “EE” or “I” Bonds. “EE” Bonds are sold at their face value. They pay a fixed interest throughout the duration of the bond. “I” Bonds operate a little bit differently. They are sold at their face value and pay a fixed interest rate and an additional rate based on inflation. Both bonds are sold in increments.
The good, bad, and ugly
While savings bonds are considered a safe way to park your cash, it does come with a few disadvantages. Savings bonds purchased cannot be redeemed until a year after purchase. In addition, if cashed prior to five years, you will lose three months of earned interest. While the interest is taxable for federal purposes, it is not taxable to the state. Additionally, because it is equivalent to cash, it pays very little interest.
All isn’t lost
Although savings bonds will not make you rich, they can help you park your cash. Savings bonds are a great tool to use to reach short-term savings goals. In addition, they may be an option to consider when building an emergency fund since they pay a little more interest than a traditional savings account.
Remember: your choice, your future!