This is the first article in a series focusing on bonds. I’ll start by discussing four different types of bonds: Series EE, Series I, Treasury Bonds (T-Bond), and Treasury Inflation Protected Securities (TIPS). Future articles in this series will be focused on Series I Bonds and how to purchase and redeem them.

With the stock market swinging up and down like the pendulum of a grandfather clock, treasury securities (bonds) have become quite the hot topic. One may not become rich from purchasing them (though it depends on how much is purchased, and how long until maturity), but bonds have many great characteristics that make them a part of any sound investment portfolio.

Just a few of these characteristics include the guarantee of the US Government that you will not lose your principal money, exemption from state and local income taxes (federal taxes must be paid unless you cash in the savings bonds to pay for college), low incremental investing to get started, and being able to confidently purchase them directly, thus cutting out the middle man and saving on fees.

Series EE

  • Maturity Date: 30 years
  • Minimum Holding Period: You must keep this bond for at least 1 year
  • How are you Paid: Both interest and principal are paid in one lump sum when you redeem
  • How is Interest Accrued: Interest accrues monthly, and is compounded semi-annually
  • Interest Rate: Fixed from the day you purchase it

Series I Bond

  • Maturity Date: 30 years
  • Minimum Holding Period: You must keep this bond for at least 1 year
  • How You are Paid: Both interest and principal are paid in one lump sum when you redeem
  • How Interest is Accrued: Interest accrues monthly, and is compounded semi-annually
  • Interest Rate: Fixed rate from the day that you purchase until maturity, plus an inflation rate premium that changes every six months in May and November (your yield will be these two rates added together). See the current I-Bonds rates and formula.

T-Bond

  • Maturity Date: 30 years
  • Minimum Holding Period: None
  • How You are Paid: Every six months you receive interest money; when you redeem you will be paid the face value
  • How interest is Accrued: Every six months interest earned will be paid to you
  • Interest Rate: Fixed rate from the day that you purchase until maturity

TIPS

  • Maturity Date: 5 year, 10 year, or 30 years
  • Minimum Holding Period: None
  • How You are Paid: Every six months you receive interest money applied to the adjusted principal; when you redeem you will be paid the adjusted face value or original face value, whichever is greater (principal changes in accordance with monthly changes to the Consumer Price Index to account for inflation and deflation)
  • How Interest is Accrued: Every six months interest earned will be paid to you
  • Interest Rate: Fixed rate from the day that you purchase until maturity

As you can see, each of these bonds offers their own assets to your portfolio. For more information on any of these, and also on Treasury Bills and Treasury Notes, please see TreasuryDirect.

In the next article of this series, I will discuss the Series I Bond in more detail, as well as take you through the process of how to purchase them.






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Comments to Comparing Different Types of Treasury Securities

  1. If a city declares bankruptcy and you have invested in its municiple bonds, do you lose your money?

    Katie Christianson


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