U.S. savings bonds and certificates of deposit (CDs) are both savings vehicles that offer a modest profit for a high degree of safety. In both cases, the investor is lending some cash in return for the payment of a set amount of interest. Both are easy, convenient ways to invest without going through a broker. Your savings will be safe and earn interest.

There are differences, though, and the biggest comes down to time. U.S. savings bonds are designed to be a long-term investment, while CDs can be found with 澳洲幸运5官方开奖结果体彩网:maturities as short as one month.

U.S. Savings Bonds

A 澳洲幸运5官方开奖结果体彩网:U.S. savings bond is guaranteed to double in value over 20 years, and it can keep earning interest if held for up to 30 years. That’s why the savings bond is a traditional♊ gift for ✱newborn babies.

A savings bond cannot be cashed in during the first year, and a penalty of three months’ interest is imposed for cashing it in before five years have passed. After that, 🌠the owner of the bond will get back the purchase price in full and forgo future interest payments.

There are two main varieties of🦋 U.S. gover𒀰nment savings bonds:

• 澳洲幸运5官方开奖结果体彩网:The🔴 Series EE savings 𒁃bond pays a fixed interest that is guaranteed to double the value of the bond over 20 years. The rate is fixed when the bond is purchased, and tax is deferred until the bond is cashed. The interest rate on EE bonds through April 2024 is fixed at 2.70%.
• The 澳洲幸运5官方开奖结果体彩网:Series I savings bond has both a fixed and a variable interest rate. The fixed rate is set when the bond is purchased, and the variable rate is adjusted every six months based on consumer price inflation. That can prevent a case of investor’s remorse if interest rates soar during the bond’s life. The interest rate on I bonds through April 2024 is fixed at 5.27%.

Certificates of Deposit (CDs)

澳洲幸运5官方开奖结果体彩网:Certificates of deposit (CDs) are issued by banks and are a form of savings account. They pay a little more interest than a regular savings account. A CD can be bought for a term as short as one month and as long as 10 years. The shorter the term, the lower the 澳洲幸运5官方开奖结果体彩网:interest rate.

The interest rates offered at any given time are tied to the current prime rate. Thus, if you’re CD shopping at a time of low rates and rock-bottom inflation, it makes sense to avoid tying up your money for a long period. If it looks like interest rates will rise soon, you can buy a one-, three-, or 澳洲幸运5官方开奖结果体彩网:six-month CD and shop around for a be🐎tter deal when it matures.

Some investors use a strategy called 澳洲幸运5官方开奖结果体彩网:laddering to invest in CDs. They buy a new CD every month or every three months regardless of the interest rates offered. That gi🔴ve🀅s them exposure to the highest rates available at any given time while ensuring that some cash is readily available as an older CD matures.

Of the two investment options, CDs are the more flexible. You don’t have to commit to a long-term investment or tie up your money for an extended period. However, should you need to redeem the CD early, you will be assessed a penalty. It’s also not a good idea to keep your 澳洲幸运5官方开奖结果体彩网:emergency fund in a CD because 澳洲幸运5官方开奖结果体彩网:early withdrawal penalties can eat up several months of interest and even a small amount of 澳洲幸运5官方开奖结果体彩网:principal.

The Bottom Line

Both savings bonds and CDs are considered extremely safe investments. U.S. savings bonds have a AAA rating and are “backed by the full faith and credit of the U.S. government.” CDs up to $250,000 are fully insured by the 澳洲幸运5官方开奖结果体彩网:Federal Deposit Insu�🅷�rance Corp. (FDIC).

Income earned from CDs is taxable at both the state and federal level. Also, these earnings are taxed as interest income rather than as capital gains, which carries a lower rate. You should receive a 澳洲幸运5官方开奖结果体彩网:1099-INT form from the financial institution that holds the CD. When your earnings span several tax years, you will pay tax only on the portion that was earned in that taxing year. Should you hold the CD in a 澳洲幸运5官方开奖结果体彩网:tax-advantaged retirement account, such as a 401(k) or an individual retirement account (IRA), these taxes can be deferred.

Any interest earned from a saving bond is taxable. You will need to report this interest income on your annual federal tax filing. However, there are no state and local taxes assessed.

Also, Series EE and Series I bonds may qualify for education tax exclusion if you use them to pay for 澳洲幸运5官方开奖结果体彩网:qualified higher education♌ expenses and you are a qualified taxpayer. Thesꦏe funds may help you offset the cost oꦫf tuition and other fees.