Retirement and long-term savings are not usually on the minds of most college students.
What students don't know is that money can be put back, untouched, and with a guarantee to double the initial investment in five years, barring they select the right investment.
"You can always turn around after six months and get the money out," said Mindy Lyons, lead service associate at First Merchants Bank. "But for them to be worth face value it takes several years."
U.S. savings bonds are an inexpensive way to start thinking about future expenses. EE, I, and HH/H bonds are the three types that are available, but each series has positives and negatives. One negative aspect of savings bonds is that they are long-term investments.
EE series bonds double their value after their five-year maturing process. For example, a $50 bond can be bought today for $25. In five years the bond will be worth its full $50. Currently the interest rate is 4.07 percent and is effective until April. The bonds earn interest for 30 years after they mature. The series comes in denominations as low as $50 matured value, up to $10,000 matured value.
"EE bonds are nice for children to put away for college," Lyons said. "They are a safe investment."
They increase in value monthly and interest is compounded semi-annually.
The interest is also exempt from state and local tax, and federal tax can be deferred until the bond is redeemed or stops earning interest after 30 years.
The bonds can be redeemed after six months, but a penalty of three months interest must be paid if they are cashed in before five years.
On ustreas.gov, Secretary of the Treasury Paul H. O'Neill said, "The Patriot Bond is an opportunity for all Americans to contribute to the government's war effort and save for their futures as well."
Series EE savings bonds were designated "The Patriot Bond" on Dec. 11, 2001, three months after the attacks on the World Trade Center and the Pentagon. EE bonds bought since that date have had "Patriot Bond" inscribed on them.
EE series bonds also have another positive in that they can be exchanged for HH series bonds. This is good because HH bonds can only be gotten through exchange from EE bonds, other savings notes, or matured H series bonds. They pay interest at a fixed rate (currently 4 percent) that is set the day of the purchase. The interest rate is reset on the 10th anniversary of the bond's issue date.
The downside is that HH bonds have to be bought at face value in denominations of $500, $1,000, $5,000 and $10,000.
Interest is paid every six months providing "current income," which means interest payments are made by direct deposit into a checking or savings account. This means you get instant access to profits.
I series bonds are also bought at face value, but they can be bought in the smaller amounts just like the EE series. Interest is added monthly (currently at 4.4 percent) and paid when the bond is cashed in. They are setup to grow in value with inflation-indexed earnings for up to 30 years.
"A lot of older people have had them for years and are cashing them in," Lyons said. "It is (also) wise to roll them over so you don't have to pay taxes on the interest."
They have a fixed rate of interest with semiannual inflation adjustments that help guard the purchasing power of the money invested. The semi-annual inflation rate can change every six months (in May and November).
Just like the EE bonds, they increase in value each month and are compounded semi-annually. The value increased the first day of each month and they have a guaranteed payoff. The same tax guidelines apply to the I and EE bonds.
At First Merchants, a standard savings account only earns .65 percent interest and a money market account is earning only .85% interest. It also takes a minimum of $500 to buy a certificate of deposit for one year and their interest rate is 2.30 percent.
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