Underrated in America: U.S. Savings Bonds

Pop Quiz: What popular American investment with more than 45 million investors has not lost one cent of its value during the recent turbulent months?

...Give up? It's the United States Savings Bond.

Issued by the US Treasury Department, the US Savings Bond program has been underrated since its inception in 1941. At the time, millions of Americans didn't see it as a way of protecting their money, they saw it as a way to protect their freedom. While the same can't be said of where the funds are going now, we do know that because of the recent fluctuations in the financial markets, US Savings Bonds are the safest investment available to Americans today.

How safe are they? They're backed by the 'full strength, faith and credit' of the United States government. That's nice isn't it, but what does it mean? It's commonly understood that the value of a US Savings Bond is guaranteed by the protection of the US government, and to earn at least the guaranteed rate of return for the life of the bond, usually 30 years. US Savings Bonds are considered low-risk because in order to lose value, the government would have to crumble, and let's face it, we'll have bigger problems than our savings bonds if that occurs. Safe, yes; I'd even say Super Safe!

Want even more of a reason to invest in US Savings Bonds? The Tax-Free for Education rules make them quite a flexible or helpful investment. Looking to help little Johnny get a jump-start on college tuition costs? The Tax-Free for Education rules allow for Savings Bond owners to cash-in their investment, provided they meet the nine tax-free savings bond criteria, and not have to pay the taxes when used to pay for higher education.

Don't miss the rest of our series on Underrated In America!

For all this safety and security, tax-free education benefit and ease of management you would expect to give back something in the form of return on your investment. While considered modest, (I Bonds purchased today will earn 5.64% changing every six months), you need to look at the big picture.

Consider this: If you put $100 into the Dow Jones on November 1st, 2006 and invested $100 in an I Bond at the same time you would be one happy savings bond owner. Your stock portfolio would be worth only $78 and your Savings Bond is worth just over $107. Broken down, the market has lost more than 22% while your savings bond has gained 7%.

Because of what has recently happened to the financial markets, people who own savings bonds are in the cat-bird seat. Recently, some bond owners told me that they were able to pay for their child's fall semester at college by simply cashing in some savings bonds. "If I didn't have savings bonds, I would have had to cash in some of my stocks at a deep loss." said T.D. of Milipitas, CA.

This is all great news for Savings Bonds, but why hasn't your financial advisor ever mentioned them? Simply put, zero commission. Savings Bonds can only be purchased through the U.S. Treasury Department, cutting out any middle-man and his profit.

With of all the problems concerning the stock market, corporate bonds, derivatives, hedge funds, failing banks and the like, it's good to know that the reliable, old savings bond is still available.

Jack Quinn is a personal finance writer and editor for SavingsBonds.com. His first experience with savings bonds was having his picture taken while sitting on a bomb in Times Square as a child with Hollywood celebrities, promoting the Savings Bond program. He has been a guest host on financial radio and television shows and a featured writer in various personal finance magazines and newspapers. Jack has helped Savings Bond owners better understand their investments for more than 15 years.

Read Full Story