When choosing the best savings bond, it is important to determine the amount of risk you can take. You also need to consider the length of time that you would like your money to be invested. Realize that callable bonds are not generally best for achieving short-term goals. Also remember that financial professionals generally encourage diversity.
Before you try to choose which savings bond is best, you need to consider the amount of risk that you are willing to take. If you cannot bear the threat of losing any of your initial investment, you should seriously consider a U.S. treasury bond. As these bonds are loans to the federal government, they are considered to be virtually risk free.
Even if you decide to purchase U.S. treasury bonds, you will need to choose between EE and I bonds. If you are looking to invest long term, such as for a couple decades, an EE bond is likely to be your best option. Shorter-term investments are best suited with an I bond.
You may be the type of investor who is willing to withstand some risk. This may lead you to consider corporate bonds. When doing so, remember that a bond is an issuer's promise to repay a debt. Like most professional creditors, you should assess the borrower's creditworthiness. If you choose to purchase a bond from a company with bad credit or one that has yet to establish credit, make sure the rate of return is better than those for safer bonds.
You may want to think long and hard before investing in callable bonds if you are saving to meet a specific short- to mid-term goal. In these instances, it is generally best to have a savings bond that you know will mature on a given date. Callable bonds, on the contrary, allow the issuer to back out of the deal and return your investment. If you invest in such a bond and it is called by the issuer, you will need to begin investing again, often when interest rates are lower. This means you are not likely to achieve your financial goals within the desired time frame.
If you already have bonds in your investment portfolio and now you are looking to buy another, it is important to think about diversity. Financial professionals generally warn individuals to avoid investing too heavily in any one asset. Most likely your situation is not an exception, and you also need some diversification. It is best, therefore, to choose a savings bond that is suitable but that differs from those that you already own.
