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- If you want to save money, you can consider opening a savings account or savings bond.
- You may prefer savings bonds for long term savings to earn higher returns.
- Savings accounts offer lower interest rates than bonds but are ideal for emergency funds.
Savings accounts and savings bonds are two useful tools for earning some interest on your money.
If you’re not sure where to put your savings right now, knowing the differences between the two can help you choose the best one for your money.
Bond Vs Savings Account: At A Glance
Choosing between a savings bond and a savings account will likely come down to when you need your money and how you plan to use it.
- a deeply concerned It is a type of low risk investment. With savings bonds, specifically, you buy bonds from the US Treasury. Savings bonds are ideal for long-term savings. They can be useful for diversifying an investment portfolio.
- a saving account Provides easy access to your money as it is safely stored in the bank. The interest rate you earn will depend on which bank you are in. But, generally, savings accounts have lower returns than bonds because you are saving money instead of investing it.
What is a Savings Bond?
Savings bonds are sold backed by the US Treasury, so they are generally considered a safe, low-risk investment.
There are two types of US Treasury savings bond – Series I bonds and Series EE bonds. Series I bonds can help combat inflation, while it is promised that Series EE bonds will double in value if you hold the money in the bond for 20 years.
There’s no fee to buy a savings bond, but you’ll need a minimum of $25 to buy one. Each year, you can buy up to $10,000 in electronic Series I bonds, $5,000 in paper Series I bonds, and up to $10,000 in Series EE bonds.
You must hold the money in a savings bond for at least one year, and it can earn interest for up to 30 years. However, keep in mind that if you cash out the savings bond during the first five years, you will be charged an interest penalty of three months.
If You Receive a Savings Bond, You’ll Have to Pay Federal tax on interest earned, but not state tax, You can pay them when you file your tax return or wait until you’ve redeemed your bond.
When should you consider a savings bond?
If you’re trying to decide whether a savings bond is right for you, Jeb Jarrell, owner of CFP & Plenty of Money, LLC“It comes down to when you think you might need the funds and how much liquidity you need in the short term,” advises.
If you don’t need access to some of your savings for a few years, Jarrell says a Series I bond may be a better option than a savings account because it offers a higher rate of return.
Patrina Dixon, CFEI and owner of P. Dixon Consulting, LLCIt also suggests that savings bonds may be ideal for someone seeking higher education, like a college freshman.
“When they graduate, perhaps a savings bond is the ideal thing to receive or give them as a gift. When they graduate, they’ll have the money and some of the interest earned on top of it. It matures too. is gone, and they can then get him without penalty,” Dixon explains.
Savings bonds are also often used to diversify investment portfolios. It can be a good low-risk investment if you keep your money in bonds and allow it to fully mature.
What is a Savings Account?
A savings account is a federally insured bank account that you would find at a credit union or bank.
There is a lot of variety when it comes to savings accounts. Fees and facilities will depend on where you bank.
For example, some banks may require you to Open a savings account with a fixed amount Further to waive the monthly service charges and to maintain the minimum balance.
The interest rate you earn on a savings account can also vary greatly depending on the financial institution you choose. According to the FDIC, the average savings account earns 0.13% APY.
interest earned on savings account taxable, However, it usually doesn’t have a significant impact on when you pay taxes.
When should you consider a savings account?
a high yield savings account Best for the money will be what you need to access easily and quickly. It offers more liquidity than savings bonds – you can transfer or withdraw money from a savings account at any time. You’ll also earn more interest than with a traditional savings account.
“It’s a great place to store and save your money for things you may need to access funds for in the next 12 months,” says Dixon.
For example, a high-yield savings account can be a good place to keep an emergency fund. If something unexpected happens, like your car breaks down, you’ll be able to transfer money to a checking account or withdraw money directly if you have an ATM card or debit card in your account.