Radical Guide to Bonds: A Quick Introduction to U.S. Savings Bonds

U.S. Savings Bonds have a long association as patriotic investments.  Investors have lined up to buy the small-denomination bonds ever since they were first issued as War Bonds in World War II.  Recently, in December 2001, the Treasury Department issued “Patriot” Savings Bonds --- with a beautiful imprint of Independence Hall --- in response to the terrorist attacks of that year.

With now over 700 million saving bond certificates outstanding, the U.S. Government has succeeded in making the bonds easy to purchase.  Investors can use payroll deduction plans, 40,000 local financial institutions (savings banks, commercial banks and credit unions) or the Treasury Direct website to purchase the bonds.  The minimum denomination can be as low as $25 (for the paper EE Series), while the minimum denomination on a Treasury issue is $1,000. 

You should consider only two active programs --- the EE Bonds (successor to the E Savings Bonds program) and the I Bonds. 

Since April 2005, the EE Bonds have been issued as 20-year fixed-rate bonds (extendable to 30 years), where their coupons are adjusted twice a year to 90% of the current 5-year Treasury yield. 

I Bonds are 30-year real-rate-of-return bonds whose interest is adjusted for inflation every 6 months. In nearly every way, shape and form, I Bonds are similar to the Treasury Inflation-Protected Bond (called “TIPs,” see A Quick Introduction to Treasury Inflation-Protected Bonds (TIPs)). 

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June 7, 2005 | Permalink


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