Savings Bonds go virtual, but return on investment drops

9:57 PM, Jan 21, 2013   |    comments
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MINNEAPOLIS - The savings bond has a storied past in the United States. Backed by the government, it's one of the most guaranteed investments.

For those not in the know, this is how a savings bond used to work. A person could walk into any bank and purchase a bond at about half the cost of its printed value. For example, a $50 bond would cost you $25.

Once purchased, you immediately locked into an interest rate for a maximum of 30 years. It would take some time, but that bond would eventually be worth its printed value and if you held onto it for more than 30 years, well more than that amount.

For example, a 1982 $50 bond cashed in today is worth $146.90. Remember, it was a $25 investment, but is now worth nearly six times that amount.

Today, the savings bond investment world is considerably different. On Jan. 1, the savings bond entered a virtual world. You can still purchase bonds, but rather than on paper, everything is done online at treasurydirect.gov. Also, today when you purchase a $25 bond it's worth $25.

Technically, bonds have always been worth what you pay for them, but today it's the rate at which the "virtual bond" accrues interest that is considerably unlike its hard copy counterpart.

The interest rate today is .20 percent or 1/5 of 1 percent.

To give you an idea of what that means from the past compared to the present, if a person were to purchase a $25 bond today in 30 years it would be worth $26.50.

Still, as it's always been, it's backed by the U.S. government and guaranteed, and it's worth just a little bit more than paper it used to be printed on.

(Copyright 2013 by KARE. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

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