Are Savings Bonds the Best Option for Long Term Investors?

Ironically, savings bonds are some of the worst options for long term investors for a variety of reasons. Savings bonds generally pay a low amount of interest and are issued only as a means to raise money for federal debts. These bonds are favored by older investors who remember the days of war bonds, but today they've grown out of style as investors seek better returns.  Nonetheless, US savings bonds are also popular with college funds for kids who can see the growth of the bond and become interested in investing.

Savings Bonds Don't Pay Enough

The yield on savings bonds are paltry; they generally return about the same as a CD. Savings bond yields are adjusted every 6 months for a new inflation rate, which is generally about the same you would receive on a certificate of deposit with major differences in redemption and how bonds are paid. Savings bonds take an incredibly long time to reach maturity, though they can be cashed in before reaching maturity. US savings bonds are backed by the credit of the United States government, which has been pretty stable. But so are certificates of deposits, which are also backed up to $100,000. Just because these bonds are insured and backed does not make them any better of an investment.

Interest Calculation Steals Money

Savings bonds practically steal interest on short term deposits. For example, if you were to buy a savings bond and hold it for 3 months only to cash it in, you would receive no interest because interest is calculated semiannually. Though the US government had use of your money through the US savings bond program, you receive no return for the time that your money was locked up and couldn't be spent. Though there is no early withdrawal fee, it is unfortunate that savings bonds pay so poorly - only to take the interest if the money wasn't locked for a full 6 months. If you want a short term investment, US savings bonds are not the right choice.

Long Term Investors Should Find Better Alternatives

Investing 101 would tell us that the more time you have to invest, then the more risk you should be willing to take to generate a better return. If you have 20 years before you plan to use the money, the stock market or various bond investments are a far better opportunity for capital gains, and the interest rate policies work in your favor for these investments. Long term investors should consider stocks or even certificates of deposit before giving a second glance to US savings bonds. They're a good way to be patriotic, but a poor way to earn interest on your investment. Couple in that buying savings bonds can be a more difficult task than it should be, and you'll realize that for the first time, convenience actually pays better. It can't be stressed enough that US savings bonds are a bad investment in almost every circumstance.