All That You Need To Know About Fixed Rate Savings Bonds

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Savings Bonds

Saving up for the future is an essential aspect of one’s financial portfolio as there are seen and unseen needs that may come up anytime. But saving is not about hoarding cash, it is about investing it so that you earn while you save. You may put in your money in a savings account or buy fixed rate savings bond to invest for long term. The latter is a good option for those who do not plan to withdraw their funds for a specified period of time. Not only do they keep the amount locked in for the term, but also ensure that your money grows with additional interest that gets added to it. This gives you the base amount along with the interest earned on it at maturity, making it an attractive way to save money. The benefits of investing in these bonds are many provided that you know all about them and do it in the right way.

Savings Bonds: Tying up your money for a good cause

Fixed rate bonds may last for a period between one and five years depending on the term period they advertise. The longer you are ready to tie up cash in the bond, the higher the interest rate you will earn on them. As fixed term savings bond do not typically allow you access your cash during that term, the returns on them tend to be much higher than in any other kind of savings option. And there is also the peace of mind that the higher rate you are getting will not change. Effectively, you are tying up your money in them but with a good cause.

However, there is also the other side of the picture that you should know about. You may sometimes not be too happy about the fixed rate option because the average market rate of interest may go higher than what you are making on them. This means that you may end up losing on interest when your money is tied in fixed rate bond. Moreover, withdrawal from these bonds before the maturity is another dicey issue. If you need to make a withdrawal before the completion of the term you have signed up for, a penalty will be charged, usually as a forfeiture of interest on your savings. The size of this penalty tapers downwards as the bond period progresses. This means that the earlier you withdraw from the bond, the higher is the penalty you have to bear.

Who all should invest in fixed rate savings bonds?

As said before, fixed rate savings bonds are a great option for people who do not need to withdraw their finds before the completion of the bond period. These investors can save up for a specified time span with a specific purpose in mind. For instance, in case you have received a lump sum amount from an irregular income source such as a bonus, inheritance or proceeds of a property sale, a fixed rate bond is the best way to secure your money and earn on it as well. A majority of them need a high minimum deposit to open and do not allow you to add to the initial deposit. Since saving the amount will not affect your regular income and expenditure, this is the right way to stash aside your extra cash.

What is the optimal saving bond term for an individual?

Since there are various available options in savings bond terms, it is best to choose one that is optimal for your individual needs and goals. For instance, if you are saving up for a child who will be joining the college in another six years, a five-year savings bond will be the right option for you. On the other hand, a one-year bond will be the best for you if you are saving up to buy a house in near future. Determining an optimal time period can be tricky because long-term bonds are lucrative in terms of interest rates but they can have you trapped if the market rates go up in future. Most savers prefer mid-term savings because they give them the flexibility of time period as well as enable them to invest elsewhere if the market interest rates go up in future. It is best to consult an expert or compare the bonds online here to choose the ones that work the best in your circumstances.

Getting investment advice is the best approach to take before putting your money in fixed rate savings bonds. Taking up a tailored plan that matches your needs and goals is the best thing to do if you want to keep your savings secure as well as earn the maximum rate of interest on it.