Government Bonds and Securities

Topics: Corporate tax, Taxation in the United States, Value added tax Pages: 4 (1032 words) Published: November 15, 2010
Government bonds and securities

Trust in our government has been declining in recent years. Given the current status of our economy it is less likely to think of the government as an option for building retirement. However, investing in government bonds and securities can offer protection from times of high inflation which will leave a reliable source of income during retirement. I bonds and treasury inflation protection securities are two of the easiest ways for college graduates to begin building a retirement fund. For recent college graduates government investing can be one of the easiest and safest ways to begin saving money for retirement.

Treasury I Bonds

Investing in treasury I bonds is a safe and reliable way for recent college graduates to begin saving money for retirement. I bonds are purchased for a minimum of $25 and up to a maximum of $5,000. Although bonds do not reach maturity for thirty years after the date of purchased, they can be redeemed earlier. The earliest an I bond can be redeemed is one year: however, if redeemed the holder will lose three months of interest (Fenn, 2009, p. 161). It is only after holding for five years that the holder will receive all of the interest earned.

I bonds are designed to offer protection from times of high inflation. I bonds are able to offer protection by having two interest rates, a fixed rate and a variable rate (Fenn, 2009, p. 160). The fixed interest rate is decided at the time the bond is purchased; while the variable rate changes every six months. The variable rate can either rise or fall based on the consumer price index. It is this feature that provides protection against high inflation. Having protection from inflation is important in the current economy and for the future because it is unknown how the economy will act.

I bonds have some tax advantages that make investing in the bond appealing. I bonds are subject to federal taxes but exempt from state and local...
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