How to Buy Savings Bonds

by Dual Income No Kids on January 18, 2007 · 0 comments

If you’ve been following Dual Income No Kids, you’ll have noted that we are frequent buyers of US savings bonds. While savings bonds are not exciting investments, they have several attractive features which you should consider.

Before talking about the features of savings bonds, I’ll just say a few words about what they are. Government savings bonds are essentially lending instruments. When you buy a bond, you are lending money to the government. In return, the government agrees to pay you interest and to return your money on a specific date. The amount of interest the government pays you depends on the type of bond you buy and the combination of current federal policy and prevailing interest rates.

There are two types of bonds. Series EE and Series I. With series EE, you buy the bond for half of its face value (face value is the amount written on the actual paper bond, e.g. $50 or $100). In series EE, you are paid interest until the value of the bond is the same as its face value.

The second type of bond is series I. With series I you pay the full price of the bond up front (e.g. if the bond is for $50, you pay 50 dollars). After you pay the full price up front, you get interest every six months until the bond stops paying (usually 30 years).

Okay, back to why would you want to buy savings bonds? First, they are almost risk free. Because the government can always raise taxes, they theoretically should always be able to pay your bond’s interest. Second, when the feds pay interest on your bonds, you make money. Third, its fun and cool to have bonds. We DINKS enjoy recieving our bonds in the mail and you might as well.

Fine, so now you know about bonds. How can you buy them?

Well, there are two ways. You can buy them at a bank or you can buy them on line.

When you go into a bank, you need to bring cash to pay for your bonds. Go to the teller window and ask for a savings bond application. There are two different kinds of applications, one for series EE and the other for series I. We’ve put a picture in this posting so you can see what the application form looks like (see below). Get these from the teller and fill them out. You will need your drivers license and social security number. Be careful to make sure the teller correctly stamps and processes the form. Most tellers do not processes a lot of bonds and sometimes the forms get lost in the mail, so its important that you keep your stamped copy for your records. After your bond is processed you’ll get the bond from your local Federal Reserve in 5-6 weeks.

The second way to get bonds is to buy them via treasurydirect.gov. To do this, you will need to get your social security number, your address, your drivers license and your bank account and routing numbers. Once you have this information, go to treasury direct and open an on-line Individual/Personal account. This will take about 20 minutes. The application process is unintelligent, so you might have to wrestle with it a bit.

When you are finished, you get a confirmation message in your email inbox with your account number. You will need this confirmation email to access your new account. Once the account is activated, you can buy treasury products, including savings bonds by directly debiting your bank funds.

We DINKS have several hundred dollars in savings bond and have been buying them for years. We think you should also consider adding a few to your portfolio. Buying bonds is safe, easy and can be fun. Hopefully this brief “how-to” will help you get started.

Best,

James

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DINKS (Dual Income No Kids) Finance focuses on personal finance for couples. While by no means financial experts, we strive to provide readers with new, innovative ways of thinking about finance. Sign up now to get our ebook, "Making Money Tips for Couples" FREE.

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