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Savings Bond in America - Essay Example

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Summary
A basic finance subject teaches that bonds are used primarily for capital formation. Large scale corporate investments need financing from both the equity and bond market (Mishkin). Both the public and the private sector are seen to rely on bond issue for this purpose…
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Savings Bond in America
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Your Savings Bond in America A basic finance teaches that bonds are used primarily for capital formation. Large scale corporate investments need financing from both the equity and bond market (Mishkin). Both the public and the private sector are seen to rely on bond issue for this purpose. On the supply side, bond holding can be a very secure investment, with a definite interest return on a regular interval. Bonds give much security in terms of return and enjoy priority privilege in times of liquidation over stocks.
"U.S. Savings Bonds are a convenient, secure, and low-cost product that facilitates savings. Today, an estimated 55 million people hold U.S. Savings Bonds" (Lopez-Fernandini).
How Savings Bond Is Used in America
US Savings Bonds can be purchased for as low as $50. It can also be redeemed as early as one year after its purchase, making it a short-term investment. The bond holdings require no additional fees and "bond purchaser is not required to have a bank account to buy, hold, or redeem a bond and therefore is not subjected to the burdensome ChexSystem review" (Lopez-Fernandini).
There are two types of bonds with which small savers can choose: the Series I U.S. Savings Bond which was introduced in 1998 or the newer Series EE bond introduced in 1980. The two bond options are available at the Treasury Department, at financial institutions, internet banking system, through the payroll savings plan while and through select employers with valid social security number (Lopez-Fernandini). Currently, the Treasury Department issues 8 denominations for the paper EE bonds - $50, $75, $100, $200, $500, $1,000, $5,000, and $10,000 denominations. There is also an introduction of the electronic EE bonds which can "be bought in increments of one penny for $25 or more" (Treasury Direct). A purchase limit of $5000 worth of EE Bonds for each calendar year was set by the government (Treasury Direct).
Why Savings Bond Is Used in America
"Savings bonds are backed by the full faith and credit of the United States government" (Vohwinkle). This makes U.S. Savings Bonds the safest investment. "The return on Series I bonds (5.64% in early 2009) is currently outpacing Treasury Bills, affirming bonds as a competitive and safe investment. Given the economic challenges confronting many American families, U.S. Savings Bonds are a critical tool that could be better deployed to support savings and improve financial stability" (Lopez-Fernandini).
Since the U.S. Savings Bond is issued by the state itself, it is also exempt from both local and state taxes. "In addition, the interest earned on bonds can be tax-deferred until the bond is redeemed" (Vohwinkle). Therefore, if tax is your primary concern, the U.S Savings Bonds can be a very advantageous alternative.
Since they are available in small denominations, small savers can also take advantage of this. There is also an electronic EE Bonds which "can be purchased directly from Treasury Direct Online" thus adding convenience to savers (Vohwinkle).
Works Cited
Lopez-Fernandini, Alejandra. "Revitalizing the U.S. Savings Bonds Program." March 2009. http://www.newamerica.net/. 12 October 2009 .
Mishkin, Frederick. The Economics of Money, Banking and Financial Markets. 7th. Prentice Hall, 2006.
Treasury Direct. 24 April 2009. http://www.treasurydirect.gov. 12 October 2009 .
Vohwinkle, Jeremy. "U.S. Savings Bonds - The Safe Place to Save Money." www.about.com. 11 October 2009 . Read More
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