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The Basics About Bonds
Savings Bonds as Investments
By Megan L. Fowler
Thirty years ago it wasn't uncommon for Grandma and Grandpa to shower their new grandchild with love and, of course, presents. And while that certainly hasn't changed, their presents have. In a generation who lived and worked through the Depression, often the best gift they felt they could give was money. But rather than handing over a crisp $100 bill that could be spent at any given moment, they instead gave savings bonds. And why not? Savings bonds would simply sit in a bank for 18 years collecting interest, safe from anxious teens who might want to cash it in for their first car or an acoustic guitar at any moment.
Now, however, things aren't so simple, and savings bonds are not entirely favored within the financial industry because of their conservative nature. As with any investment there are risks and requirements, but with savings bonds, you have little to worry about. To help you understand where to put your child's, or your grandchild's, money we've consulted several pros in the business.
"A regular savings account is a liquid, interest-bearing account," says Schiela R. Peņa of Fifth Third Bank. "You are able to make deposits and withdraw funds, and the account may be closed at any time based on the financial institution's guidelines."
A savings bond on the other hand, she says, is an interest-bearing product purchased based on the face value of the bond. So if you buy a $150 bond, that bond will only be worth $150 plus the interest it gains. "Both offer the consumer a means of saving money and earning interest," Peņa says. "However, a regular savings account affords the depositor an opportunity to add to their initial investment (deposit) as long as the account is open. The interest is paid based on the funds deposited. Basically, the higher the balance, the greater potential to yield more interest. In short, the amount of interest paid to the consumer is relative to what is kept on deposit."
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