Government savings bonds can be a good way for you to start saving money for yourself or the next generation of your family. What you are doing is allowing the government to take out a loan from you, the consumer. The government can then support government spending on various programs such as social security, road work, and other various programs.
There are three different types that you can purchase. They include a paper version, a series I and lastly a series EE. The main differences are that the paper government bonds limit the amount you can buy significantly and are only available with your income tax return. The other two types allow you to buy up to 20k in total, 10k per series type. The paper version only allows you to buy 5k in them.
So how do U.S. government bonds work for you?
The new changes that will be occurring to the EE U.S. government bonds will let you always know what your interest is that you are earning on the money that you lent the government. It will remain fixed throughout the year. The government bond rates on this type of product are 3.5% as long you bought them through the six month period of May through October. If you are considering buying a new treasury note then your fixed rate will be announced at the beginning of May and November of every year.
The I Type government bond value is created by putting together a fixed and a variable inflation rate that is being charged on your money. This rate changes twice a year and it can either go up or down. The I series also allows you to earn interest up to thirty years so if you don’t need the money then you can let it sit and earn more money. This can then be transferred or given to someone as a gift.
The interest on the treasury notes is how your government bond yields you higher earning power. It works just like a bank charging you interest on a loan you take out from them. If you are a person who is trying to start slowly preparing for retirement then you should probably consider purchasing U.S. government bonds in a denomination that works well within your budget.
At the same time, you should consider the most you can afford to put into a note. This is because the more you invest, the more you will earn interest on your money for your retirement. An example would be if you earn $75,000 a year and your monthly budget says that you have $300 left at the end of every month, you should consider trying to buy one for $200. The extra $100 is your spare emergency money or savings to go towards something else.
The government savings bonds will not charge you tax on the state and local level; however, it will be taxed at the federal level until you cash it in or they mature. If you use one for schooling, yourself, or a family member, there are other additional tax benefits that you can look into.