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What are the Benefits and Drawbacks to Savings Bonds?
Money market savings bonds have been around for many decades now and are fast becoming a very popular place for investors, individuals, families and even some retirees to park their money for a conservative but reliable return. Money market savings bonds are a type of mutual fund that invests in short-term (between one and five years) debt. These debts are sometimes held by private organizations (larger multinational firms usually) but they are more predominantly held by agencies of the United States Government, banks and the United States Treasury.
Here are some reasons why money market savings bonds are so popular:
Money market savings bonds are very liquid, meaning you can take money out of them on short notice. There is no penalty for taking money out of your money market savings bond. You can also write checks from your money market savings bonds (typically three a month).
Government debt savings bonds are considered very safe because the government has the ability to raise taxes to meet its obligations so for this reason it is virtually impossible to lose your principle in money market savings bonds. To top it off, most mutual fund companies carry some sort of insurance to cover your assets.
Regular checking and savings accounts will have a tough time beating the yield that you can attract with a money market savings bond. Money market savings bonds return an average of 4 to 6 percent a year. The interest is calculated daily, but only paid out at the end of the month unless you sell the bond, then it is paid at that time you sell and withdraw your funds.
If you sell a savings bond, your broker or fund company will typically move your proceeds into a regular account so you can collect the interest. Also, when you open an account with most brokerage firms or fund companies, your money is typically put into a money market trust type account until you are ready to purchase the savings bonds.
Money market savings bonds are a smart and reliable place to hold your money. If you are between investments, saving for a house, saving for a vehicle purchase, or just looking for a safe place to put money, then consider putting your money in a money market savings bond.