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The Negative Sides of Savings Bonds

Savings bonds are characterized by a very low level of risk. The major reason for this is that they are guaranteed by the US Government and it is highly unlikely to default on the savings bonds. However, savings bonds are not deprived by their negative sides.

There are some limits imposed on the cashing of bonds. You should examine these restrictions in case you are considering the investment in savings bonds. The time period during which you are not allowed to redeem a savings bond can vary from 6 months to one year depending on its issuing date.

You will incur a penalty in case you want to redeem the savings bonds you possess during the first five years of holding. The penalty is usually equal to the interest for the past three months.

The high safety that you receive with savings bonds comes at the cost of lower returns you get. Thus, inflation imposes a huge risk on the earnings you make, because it can eat them up. Therefore, it is advisable to examine other investment vehicles in case you plan to lock this money over a longer period of time.

A hedge against inflation is part of the Series I savings bonds. Consider their use if you are determined that you are to invest in savings bonds. They will provide you with a relative fixed interest rate in addition to rate that is adjusted according to the levels of inflation. This means that you will make higher returns when inflation rates increase. Alternatively, your earnings will be smaller when inflation levels decrease.

Savings bonds may be appropriate under certain conditions and for certain type of investors. Finally, examine both the positive and negative sides of savings bonds before jumping with the two legs into investing in them, because we are speaking about your hard-earned money.

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