U.S. bonds are famous for their stability — but this doesn’t mean you should bulk up on bonds immediately. Because they have low interest rates, U.S. bonds don’t have the same opportunity for sky-high growth as other investments. And even though U.S. bonds are available for purchase to most of the public, it is best to look at your personal financial situation before investing in bonds.
A U.S. bond is something the government uses to fund its operations. When you buy a U.S. bond, you are loaning money to the government to use in any way it chooses. Because you are the lender, the government pays you interest over the term of the bond. U.S. Treasury bonds are generally a safer type of investment than other bonds because the government guarantees to repay your principal payments and interest in full.
To buy a U.S. bond, you must be a resident of the United States or one of its territories. U.S. citizens living abroad may also buy bonds, and Canadian and Mexican residents who have Social Security numbers and work in the United States may buy bonds through a payroll savings plan offered by their employers. There are no age or income requirements for buying U.S. bonds.
There are three main types of U.S. bonds: U.S. Treasury bonds, Series EE Savings bonds and Series I Savings bonds. U.S. Treasury bonds pay interest every six months and mature in 30 years, and they require a minimum purchase of $100. Series EE bonds are sold electronically at a minimum of $25 apiece and in paper form at a minimum of $50 apiece. Series I bonds are sold in the same increments as series EE bonds, with the added benefit of protecting your investment from inflation.
Who Should Invest
Despite how safe they may seem, U.S. bonds aren’t ideal for everyone. Inflation rates may cause your bonds to lose value the longer they are active, so putting all of your money into bonds probably won’t yield you a very big nest egg. However, using bonds as a short-term investment may prove to be a good choice. If you got a late start on your retirement savings or if you’re going to need funds for an upcoming expense (a child’s education, for example), investing your savings in U.S. bonds may be a good choice.
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