Unfortunately, hikes in inflation rates won’t ease up anytime soon. In that case, one of the best ways to hedge against inflation is diversifying your investment portfolio by investing in low-risk assets such as savings bonds.
However, their interest rates are low compared to other lucrative investments, such as real estate and stocks, which makes them the ideal investment options for conservative investors looking to earn interest in the long run.
So, if you are wondering how to include savings bonds in your investment portfolio to manage risks and earn interest in the long run, this article will help you out. It provides a step-by-step guide to buying savings bonds, from opening an account to completing the purchase process and managing your investment.
What Are Savings Bonds?
Savings bonds are debt securities issued by the U.S. government to raise money to fund government projects. When you buy a savings bond, you are basically lending your money to the government, and in return, it will pay you interest plus your investment.
How to Buy Savings Bonds
Before investing your money in savings bonds, it’s important to note that savings bonds are long-term investments, and you might not realize much interest if you redeem sooner. But if you have researched or consulted a financial adviser and are sure this is where you want to put your money, here is how to buy saving bonds.
1. Open an Account With TreasuryDirect
To purchase savings bonds, you will need to open an account with TreasuryDirect. This is the online platform used by the US Treasury Department to sell and manage savings bonds.
To open an account, you must provide personal information such as your name, address, and social security number. You will also need to link a bank account to your TreasuryDirect account so that you can transfer funds to purchase bonds.
2. Choosing the Right Bond
Before you can purchase savings bonds, you will need to decide which type of bond is right for you. There are two types of savings bonds available: Series EE and Series I.
Series EE bonds are fixed-rate bonds that earn interest for up to 30 years. On the other hand, Series I bonds are inflation-adjusted bonds and earn interest based on a fixed rate plus the inflation rate.
This means that if inflation rises, the interest rate will increase too. Similarly, in a period of deflation, you can expect to earn less interest, but you won’t lose the investment. Just like Series EE bonds, they are also sold at face value and mature after 30 years. Here, you are guaranteed that your investment will double in 20 years.
When choosing a bond, consider the length of time you want to invest, the interest rate, and the tax implications. It’s important to note that, although savings bonds are exempt from state and local taxes, they are subject to federal taxes.
3. Completing the Purchase Process
Once you have opened an account and selected a bond, you can proceed with the purchase process. To purchase a savings bond through TreasuryDirect, you will need to log in to your account and select the “Buy Direct” option, from which you choose the type of bond you want to purchase. Finally, enter the amount you wish to invest and click “Submit.”
You can buy saving bonds in penny increments, from as low as $25 to a maximum of $10,000 in one year. However, if you have a federal tax refund, you can invest up to $5,000 of that refund into paper I bonds.
4. Managing Savings Bond
After purchasing a savings bond, it’s important to keep track of its value, interest rate, and maturity date. You can do this by logging in to your TreasuryDirect account and viewing your portfolio. It’s also important to know when your bond will mature so that you can redeem it at the appropriate time. Savings bonds can be redeemed after one year. However, you will forfeit three months of the interest earned if you redeem them before five years.
- Only US citizens, US government employees, and official US residents can invest in US savings bonds.
- You can also buy US savings bonds through Payroll Savings Plan. In that case, your employer can deduct your paycheck and remit directly to your TreasuryDirect account.
Buying savings bonds can be a great way to save money and earn interest over time. By following these steps, you can open an account, choose the right bond, complete the purchase process, and manage your investment effectively. With patience and careful planning, you can maximize your investment in savings bonds.