Value of Savings Bonds
By Gilbert Stockton
Any person with some extra cash in his hand is unlikely to keep it in his pocket. It would count as a bit of a joke if he did! It's a natural and normal human tendency to enhance the value of one's money as much as possible. The greater the risk one is willing to take, the more the chances of earning a higher amount. This earning bit can come in many forms, e.g. interest, dividend, capital gain and so on. The trouble is that many of us consider ourselves pundits in the matter of handling money matters. So if there's a meltdown in the economy, one is in trouble.
The prospect, mentioned above, of earning higher returns stems from the fact that you're investing your extra money with a variety of institutions such as banks, building societies or various kinds of financial bodies that are affected by the supply and demand of money in the market. Thanks largely to media hype, there's a widespread perception that these are rock-solid in nature and will never let you down.
"Never," did you say? Well, let me tell you about the value of savings bonds. Now these bonds are guaranteed by the government and that's what makes them truly rock-solid. The true value of savings bonds lies not in the interest they might generate for you but in the fact that they carry what is known in the money market as 'sovereign guarantee'. In other words, there'll be no meltdown in savings bonds because they're backed by the government of the country.
Naturally, you have to pay a price for this protection from risk. And that value is nothing but lower returns. But don't be misled by looking at the interest figures and concluding that the value of savings bonds is low. They are apparently low but that's because they fetch you the huge unseen benefit of permanent protection from erosion.
These bonds pay a fixed return of interest. But remember, they shield you from ups and downs caused by demand-supply anomalies in the money market. This shield is so perfect that savings bonds will pay you interest for the exact number of days you hold them. In many other instruments, they don't pay interest on money kept for part of the month. These strict clauses may very well substantially lessen the real return these so-called higher interest-bearing deposits promise you. If you haven't read the small print, you're likely to get trapped in situations where you lose out.
You must remember, though, that you can't sell or cash in savings bonds prematurely. They are non-transferable. They aren't liquid investments and they aren't marketable either - over the Internet or elsewhere! You can't give or take loans holding savings bonds as collateral. The biggest "can" factor, of course, is that you can expect that your tenure will remain fixed and unbreakable and the promised interest is government guaranteed and irreducible. In sum, that's the real value of savings bonds. Go for them!
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