May 20, 2007,
A.M. asks from Crown Point, IN on May 18, 2007
While reading about what to give as gifts, many suggested savings bonds. This may be a silly question, but how exactly do savings bonds work? I never had savings bonds - was never given any as a child, have never invested in them. My son (almost 7)received one when he was born, for $25. Do I just hang on to that certificate until he is ready to cash it in? How well do the bonds appreciate? Any info is appreciated!
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R.M. answers from Chicago on May 18, 2007
E.W. answers from Chicago on May 18, 2007
I am not positive about this, but I think if you purchase a $50 savings bond, you pay $25. It isn't worth $50 intil it matures. I had some I cashed out early for college, and I got close to the face value, so they do appreciate somewhat quickly. You can buy them at the bank, so they can give you more info. My daughter got one, and the gift-giver needed her soc. security number, which makes me nervous though...
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C.G. answers from Chicago on May 20, 2007
There are two types of bonds. The I and the EE. The EE are the more common ones. When you purchase these you purchase them for half the face value. In about 8 years it will be at face value. It then earns interest for about 20 more years. It is a good thing to hang on to bonds as long as possible. About the time the child turns 18 or even 21 they may have a nice little chunk of change. The rates do vary on bonds but they are usually between 3 and 5 percent. I hope this helps a little.
H.P. answers from Chicago on May 19, 2007
yes just keep it they keep gaining intrest until you cash them in. you willhave to pay the tax on the intrest. I can't remember the rate of intrest but i beleive it was somewhere in the 7% area.
C.D. answers from Chicago on May 18, 2007
I received many savings bonds over the years, but have never cashed any in. They make some money over time, like most other conservative investments. One thing I do is I pay taxes on them every year so when I cash them in, I don't get hit with having to pay a lot of taxes at that one time. I found the following site to be useful in learning about and calculating taxes for savings bonds. It can tell you how much a bond is worth too.
M.M. answers from Chicago on May 18, 2007
N.P. answers from Chicago on May 19, 2007
Bonds are nice but take a long time to mature. It depends what type and series of bond you buy as to when it matures. Bonds have a cap at 30 years. I actually just finally cashed in some old bonds I had from when I was born. They were over 30 years old so weren't earning interest anyway. I had some 25 dollar bonds from 1974 that netted me $95, others that only netted me $45 - once again, depends on type/class/years you held and bond rate. Of course all of that interest had to be claim on taxes so I feel like my profit of 70 bucks was cut in half. If the child has a college saving program (ex. College of IL) you might want to just write a check out for that and state you want it to go to their college program. That's what we are doing with my parent's now. It doesn't lower our monthly/yearly payments but will reduce the overall amount of time we pay on the loan (which obviously helps).