Friday, June 8, 2012

Beat The Stock Market Slack With Government Savings Bonds

Posted by Monir at 9:43 AM

Amateur Asset Allocator reckons investment opportunities in stock market indexes have thinned out on the back of erratic and puny returns. If you are looking for a safe haven that can grow your pile, government savings bonds are the best bet. Instead of gambling on a hodgepodge of volatile equities, government backed bonds come with guaranteed interest rates. On the date of maturity, the government is bound to pay you the principal sum plus interest. In effect, you are extending a loan facility to the government to meet debt payments and operational expenses. These bonds are issued in your name after filling the necessary social security details.
Types Of Savings Bonds
In general there are two types of bonds that you can invest in;
1. Series EE savings bonds.
2. Series I savings bonds.
As of January 1st this year, the government has ceased the sale of paper savings bonds at financial institutions in a bid to encourage electronic transactions. The following is a look at both types and how they differ.
Series EE Savings Bonds
You can purchase these low risk bonds using your TreasuryDirect account. The interest rate is pegged at current market rates for a period spanning up to 30 years. The $25 EE is the cheapest you can buy with the maximum ceiling being $10,000 per calendar year. Bonds bought after 2005 earn a fixed rate interest, while bonds bought between may 1997 and April 2005 earn a varying interest rate. One year is the minimum ownership period with penalties exacted for early redemption. Cashing in before five years are over attracts a penalty of 3 month interest cutbacks. Using these to fund educational pursuits is grounds for federal income tax exemption. It is important to note that such instruments are not exempt from taxation where inheritance and estate taxes are concerned.
I Series Savings Bonds
This is a liquid investment vehicle that will protect you from inflationary uncertainties on top of a healthy interest income. You can purchase I series savings bonds as a gift or as retirement plan via TreasuryDirect. The current interest rate is a mouth watering 3.06 percent through April 2012. The minimum you can purchase is a $25 electronic I bond and a $50 paper I bond. Annual restrictions on the maximum purchasable limit stand at $5,000 for paper bonds and $10,000 for electronic bonds. Paper bonds are usually broken down in denominations of $50, $75, $100, $200, $500, $1000, and $5000. Buying electronic bonds is a breezy process starting at $25 to the penny and upwards. Minimum ownership is 1 year with penalties same as EE savings bonds. The interest earning period is up to 30 years. State tax exemptions apply though this is subject to certain conditions such as IRS code applications.
Government bonds have the distinction of being non-tradable after purchase. Using Amateur Asset Allocator can give you a good idea of how the markets and future interest rates will affect your investment in such financial instruments. In some cases, exemption from local and state taxes may be deferred until you redeem the bonds.



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