How Do Savings Bonds Work?

What are Savings Bonds?

Savings bonds are a major offering in credit unions and at banks. It is important to know what savings bonds are all about so that you can understand whether or not they will benefit you in any way. This page is going to take you through some of the basics of what savings bonds are and how they are used.

What are Savings Bonds?

Savings bonds are securities that are issued by the United States Treasury Department. They are designed to provide funding dollars for the United States Government. In return for making use of your money, the government can then pay you interest. This discussion is going to specifically focus on covering EE Savings Bonds and I Savings Bonds.

How much interest is earned in Savings Bonds?

The interest rates generally depend upon the economic conditions. As interest rates in general begin to rise, so will the interest rates that are paid on these savings bonds. If you are looking for exact numbers based on the current conditions, the best resource is the website for the Bureau of Public Debt. In general, you will find that the interest rates are fairly competitive as far as safe, government backed investments go, and you may even benefit from additional tax incentives to enhance the returns that you receive.

What Tax Benefits are offered by Savings Bonds?

This is really going to depend on your individual situation. Depending on your situation, you may be able to earn some really nice benefits simply by using savings bonds. For starters, for example, savings bonds do not pay periodic interest that is subject to an income tax. Instead, they increase in value over the span of years. What this means is that you can delay claiming the interest until your bonds are redeemed, or until they mature, which is around 30 years following their issuance. If you do not want to claim the income now, but you want to claim the income later instead, then savings bonds can make this possible.

Another tax benefit that is associated with savings bonds is the Educational Tax Exclusion, or the Educational Savings Bond Program. If you cash your bonds in for use for qualified higher education related expenses, you may be able to exclude that income all together from your taxes. It is important that you are sure to follow the rule regarding the expenses, income limits and other regulations that exist if you want to take full advantage of this. For more information about this exclusion program, visit the website for the Savings Bond for Education Program.

Finally, savings bond interest is exempt both from state income taxes and local income taxes. What this means is that you can spend more of what you earn without worrying about the taxes. Depending on your state that you live in, this may be a big deal, but it may be insignificant instead so find out about your state’s regulations before you invest.

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Originally posted 2020-12-10 05:03:46. Republished by Old Post Promoter

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