How Do Savings Bonds Work
I think it depends. My Grandmother got me savings bonds as well, and I couldn't cash them in until I was 18. As soon as I turned 18, I made my dad give them to me. I was able to bring them to any bank, and they give you money for them. If it is a $50 savings bond, over time it will be worth more money. I got $80 for a $50 savings bond, sometimes I got less and sometimes I got more. The longer you wait to cash them, the more money it is worth.
Different types of savings bonds, but the most typical one is the EE bond. You purchase it for half the face value ($50 bond, you purchase it for $25). Hold it for however long time period you want, they stop earning interest after 30 years. You can cash it in, although if you cash it in within the first 5 years you lose a certain amount of interest. When you cash them in, you get what they are worth at that point in time, and at the end of the year will get a 1099-Int from whatever bank you cashed them in at. You have two choices on how to handle the interest from savings bonds, you can either wait until you cash them in, or declare the interest that the bonds have accrued during the year for that years interest (the change in value from one year to the next is the interest). Pros are that they are a safe investment, and don't do too bad with interest rate, cons are that because they are a safe investment you don't expect to make a lot of money in them, unlike the stock market .
You can also use savings bonds for education purposes, and if you meet all the requirements, the interest is not taxable when you cash the bonds in.
"how do they work"
Bonds represent debt. Companies, Governments and Municipalities issue bonds as a method of raising money to pay for things, like a new factory building or day-today-operations or perhaps a sewer system or new roads. For the overwhelming majority of bonds issued in the USA, bonds have a face or "par" value of $1,000.00. Most pay annual interest payments, known as the "coupon" rate and that is always based on that $1000 par. For instance, a bond with a coupon rate of 5% pays $50.00 annually in interest payments and they are typically paid twice a year, 6 months apart. Bonds have a specific "maturity date", that is the date on which the issuer will redeem them to the holder for their par value.
"where can i get them"
Through any broker/dealer with a bond desk.
"how long do they take"
I suppose by this you are aksing what their maturities are. They are issued with maturities as short as 30 days, as is the case with certain US Government paper and as long as 30 years and in some cases, longer.
"how much are they worth."
As I said above, most have a par value of $1000.00. Their prices can be bid above that par or below it on the open market, depending on numerous factors.
"How much will i make with 250$"
Not much. The only debt instruments you can buy with $250 are US Treasury Savings Bonds. You could buy shares of a bond Mutual Fund for that little however. The answer to how much you
will make depends on the yield or interest rate paid.
"also is a bond a good low risk alternative to stock purchasing."
Bonds are considered to be lower risk because they have a finite life, pay a known rate of interest and will mature at par. There are numerous risks to owning bonds however, such as default risk, interest rate risk etc.
"should i use the 250 to make a secured loan for my dad to raise his credit? he has bad credit and is struggling."
No. I'm sure you love your dad, but instead of loaning him the money, perhaps you could just pay the electric bill and the cable bill. How would a loan to your father be "secured" anyway? Is he going to sign over his car as collateral?
As far as what Judy said above, most bonds do NOT require a "$25K investment". You can buy single bonds all day long from any broker dealer with a bond desk. There are some that may have a minimum purchase lot of 5 or 10 or even 25, but they are the exception, not the rule. But you won't likely find one for $250.00. If you do, it would be what is know as a "junk bond" meaning its credit is horrible, the company is in trouble and likely to default. A bond selling for $250 has been bid down by the market to 25 cents on the dollar. Never a good sign.
Savings bonds are basically an IOU from the US Government. You pay an amount up front and it then earns interest until you redeem (cash) it. You can usually cash it at a local bank - some may require you to have an account - as they (the bank) gives you the money, and they send in the savings bond to collect the money they just gave you.
There is a link on my website called treasury direct.gov. On the first page go to individual/personal, then near the bottom of that page is the savings bond calculator. This will help you work out their value. There is also a neat way of recording all your bonds and printing the information.
As far as the tax goes - please seek professional advice. If you are using the total value for college expenses - there MAY be some tax benefit. Again, I am not an accountant -
You did not say what kind of bond this was. If it was a U S government EE savings bond, I believe the bank was very mistaken. If you had purchased a U S EE bond during 6/2001 the value currently would be $61.96. Go here to calculate the current value.
How do they work? you purchase a $100 face U S EE bond at 1/2 the face amount. $50. You must hold it at least 5 years before redeeming it without loosing 3 months interest. You can hold them for a total period of 30 years before interest stops. The $100 face amount does not really have much significance other than at some point in time you can redeem it for $100. Besides EE bonds there are also I bonds that you can purchase. The I bonds are indexed to inflation. The EE bonds are not. The great thing about both of these two types of bonds is that the interest accumulates tax deferred. They are the only bonds that the U S government issued that have that feature.
You can learn all about U S government bonds here.
Category: Personal Finance