Government Savings Bonds in the US - Essay Example

This depends upon how long the investors have held the savings bonds. The maturity date for Series EE savings bonds differs depending on when the investor invested in the bonds (Wengroff, 2002).

The I Series of savings bonds are bonds issued by the US treasury. The rate of these I bonds usually adjusts to track inflation and is guaranteed that it will never lose value. The I bonds stand for the individual savings bond. They adjust their interest rate every 6 months to track changes in the level of inflation as measured by the consumer price index. In most cases, these bonds are considered a long-term investments. They however have a one-year minimum hold time in which the bond cannot be redeemed. Moreover, they are subject to a three-month interest penalty if the bond is redeemed within 5 years of the issue date (I Bonds info, 2012).

The E series bond is a kind of bond issued by the government of the US during World War 2. The accrual bonds were issued at an interest rate of 75% of the face value amount. The interest rate is payable at redemption as part of the redemption value. Series E Bond interest is subject to Federal income tax purposes for the year in that the Series E Bonds are redeemed. They were later replaced with Series EE Bond in 1980 (Wengroff, 2002). The savings notes are also known as freedom shares. These bonds were issued on a discount basis of an interest rate of 81% of the face value amount. The interest rate is paid at redemption as part of the current redemption value. Currently unredeemed and un-matured savings notes accrue interest at a variable, market-based rate or the guaranteed minimum investment yield, whichever is higher (Fabozzi, 2007).

The savings note has the best coupon rate. This is because it earns an interest of $266.16 in a year. I would invest in the savings note given the time value of money. This is because it earns a higher interest rate per year in comparison to the other bonds. This means that if the interest rate is compounded annually for a longer duration of years, the total amount gained would be higher than other bonds. The amount invested is also small than the other bonds.

The time value of money depends on some basic factors to accumulate. This is the future value, present value, interest rate, and the number of compounding periods (Wengroff, 2002). One main advantage of savings bonds is that the amounts invested in the bonds are catered for a long time. Secondly, the interest rates are also high in comparison to other forms of investment such as saving schemes in banks. In addition, the sum invested is not affected by inflation as seen in the case of the E series bond. However, certain disadvantages are associated with these bonds. One is that they can only be redeemed at the end of a particular period. Secondly, they take quite a long time to mature. Lastly, some penalties are imposed if investors default on the terms of the investment agreement (Fabozzi, 2007).