What Should I Consider before I Buy a Savings Bond?

Malcolm Tatum
Malcolm Tatum

Choosing to buy a savings bond is one way of creating some amount of financial security for the future. Since the bonds do take time to mature and will hold onto their value, this type of investment is among the safest. Along with the benefits, it is important to consider whether savings bonds are the best option or if some other saving or investing strategy would be a better approach.

The interest rate is an important factor to consider before purchasing a savings bond.
The interest rate is an important factor to consider before purchasing a savings bond.

One point to consider before choosing to buy a savings bond is the rate of return that is generated. Since this type of security is considered very safe, the interest that is paid on the bond is relatively low. Before making the purchase, compare the different types of savings bonds that are currently available. Some bond series offer better returns than others, although the amount of principal that has to be provided may also be higher. Look around for other types of bond issues, such as municipal bonds, that may represent very little risk and offer a better return for the investment, given the amount you have to invest.

Compare the potential returns with other forms of investments. One of the reasons many people choose to buy a savings bond is that there are bonds available for very little money up front. This is particularly important when there isn’t a lot of money to invest. Before assuming that a savings bond is the best you can do given the cash on hand to invest, talk with a broker or even your banker. That small amount may be enough to get involved in a stable investment that ultimately provides a greater return.

Keep in mind that some types of savings bonds typically take a number of years to mature. This means the investment is tied up for an extended period of time. Before you buy a savings bond, ask yourself if it is really feasible to wait decades before being able to cash in the bond and receive the interest that accrued in the interim. If the idea of having to wait that long is somewhat distressing, going with something like a certificate of deposit may be a better option.

There are many reasons to buy a savings bond. People often purchase them for children, using them as a means of incrementally creating a nest egg that helps the child with education and other expenses later in life. Others go with savings bonds simply because they are safe and easy to understand. Make sure you know why the idea of buying a savings bond is attractive, then ask if there is another investment opportunity that will serve the purpose equally well, while providing a better return.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including wiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

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