An Easy Way to Save Money: Savings Bonds Through Automatic Deductions

We all know how important saving is, especially for retirement. It doesn’t matter how young you are. Those who begin to diligently save at a young age can be wealthy in their later years, just based on their retirement dollars. Still, setting aside money can be hard to do. Whether or not you have a retirement or savings plan through your employer, here’s an idea you should know about.

You can purchase U.S. Savings Bonds through a simple and safe process that is about as painless as savings can get. You can log onto TreasuryDirect, fill in key information and open your own savings bond purchase account. Then submit a request to your company’s payroll processor to start deducting a specified amount from your paycheck. As your account builds, the payroll processor sends your savings to Treasury Direct to purchase savings bonds in your name. If your employer doesn’t already have a plan for doing this, talk it over with the payroll processor first to find out if he or she is willing to handle it for you.

Why is Treasury Direct better than traditional payroll savings accounts?

Because if you have a computer with secure Internet access, you can buy, manage, and redeem your savings bonds at any time, 24/7.

Do you have to go through your employer to use the savings bond program?

According to Treasury Direct, you do not. Some employers may not be willing, even though the process is simple. Or maybe you are self-employed, unemployed, or just prefer to do it yourself. In that case, you can arrange to have money taken right out of your checking account, your savings accounts, or even your pension account or an annuity to purchase savings bonds.

The bonds you can buy are Series EE and I. Both types of savings bonds are sold electronically at face value. So a $50 savings bond sells for $50, and accrues interest over its life. If you prefer, you can also buy both types of savings bonds on paper at financial institutions, though paper savings bonds will eventually be phased out. Paper EE savings bonds are sold at 50 percent of their face value.

How long does it take for a Series EE or I savings bond to mature?

The method of calculating interest on the two types of savings bonds is slightly different, but in general, both types reach maturity in 20 years. Series EE savings bonds have a fixed rate of interest, but they are guaranteed to double their value by the time they’ve reached maturity. (For paper EE savings bonds that are sold at 50 percent of their face value, that means they will reach their stated face value). Series I savings bonds have an inflation-adjusted interest rate, making them a slightly better deal. Both types of savings bonds continue to accrue interest for a period of 30 years.

Can you cash in your savings bonds early?

You must agree to hold the bonds for at least one year. After that, if you redeem the savings bond in less than five years, you will forfeit the three most recent months of interest payments. After five years, there is no penalty.

Is there a minimum deposit amount for buying savings bonds?

When done electronically, you can actually make deposits in increments as small as a few pennies. If your employer is withholding the amounts for you, they may set a minimum of their own.

How much does it cost to buy a savings bond?

Twenty-five dollars is the smallest denomination of savings bond you can buy, and the largest is $30,000. As funds accumulate, you are issued a Zero Percent Certificate of Indebtedness (C of I), which is like a placeholder. Suppose you deposit $5 per week and you wish to buy $25 bonds. While you are waiting for your account to build up to the minimum purchase amount of $25, you own a C of I, that earns no interest. After five weeks when your account contains $25, you can buy a bond and start earning interest. You can hold any amount of money in a C of I. So if your goal is to buy a $500 savings bond, you just let the C of I grow to that point. But, keep in mind, there is no interest earned until you buy the savings bond, so it may be in your best interest to buy the smaller denomination of savings bond and get the interest rolling in.

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