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So last Christmas your grandparents decided to
give you a savings bond and you don't know anything about them? That's no problem...your
questions are what we are here to answer.
First of all, you should definitely thank your grandparents (or whoever it was that gave
it to you) because they care about your future.
Savings bonds are the single most common investments that young adults have. They are
usually given to us as gifts.
They are are basically notes in the form of money from the government that says that they
owe you the amount of the savings bond. However, they do not owe you that much money for
30 years.
You might be thinking "What?! I don't get any money for thirty years?"
Well, when you buy a savings bond, you usually pay 1/2 as much as it is worth and after 30
years of waiting patiently, the bond is worth twice as much as you paid. For
example, you would buy a $100 savings bond for $50 and then could sell it in 30 years for
atleast $100.
The reason that you get more than you paid for is because bonds earn interest. What this
means is that for every dollar that you loan the government, they pay you back that much
and a little more. Over time, that interest adds up and eventually reaches the value of
the bond.
A savings bond can actually become worth more than what its value is. The value is just
what the government promises to repay after thirty years. In fact, a $100 bond that
earns 4% interest for 30 years will actually be worth $162 at the end of that time.
To most people, thirty years is a really long time to just let money sit there without
spending it. We encourage you to always keep your money invested until you reach your goal
that you were investing for. Like if you wanted to save for college, you probably
shouldn't take your money out to buy a new car at the age of 16.
But if you do decide that you need the money before the thirty years are up, you can
usually cash a savings bond at any bank. You probably won't receive the full value of the
bond but you will earn as what you invested and the interest that it earned during the
time that you had the bond.
Savings bonds are considered debts to our government because they have to pay back the
value of the bond after the time is up. This is why savings bonds are considered very safe
investments.
We hope now you have an understanding of those savings bonds and if you would like to
learn more, you can go to the US Treasury's Savings Bonds Online.
Next: Mutual Funds
Chris
publishes a monthly newsletter called Young Investor Monthly that helps teach and
encourage young adults to start investing. Visit the site at www.youngmonthly.com
and sign up for a free copy. |
