Before making any financial investment you should always get the most recent information as possible. One investment you can make for the future is the purchasing of savings bonds. There are some restrictions in order for you to be able to own savings bonds. You must reside in the United States, if you do not live in the United States you have to a citizen and have a U.S. Address on record, regardless of where you reside you can own them if you are a civilian employee, and minors are allowed to own them.

There are rules for taxes on savings bonds. Interest which is earned on I Bonds are subject to federal tax. If you wish to do so you can defer this until final maturity, redemption, or another taxable disposition, whatever one of these happens first. These bonds are also subject to inheritance, estate, gift, and other excise tax, for both state and federal. There are different ways for you to report the interest you earn on you I Savings Bonds.

This interest should always be added with the other income from interest on your federal tax return. One way to report the interest is cash basis. This is when you defer the interest until redemption, maturity, another taxable disposition, whatever one comes first. Another way to report it is an accural basis. This is where you would report the interest yearly. If you decide t do it this way you must continue to report it annually. When doing this for one that is in a child’s name this is an advantage.

When thinking of the future for either yourself or a loved one, then an investment into savings bonds can be a wise choice. You can either get them in paper form or electronically. When purchased electronically you can also manage them and redeem them online. When purchasing EE Bonds  on paper you buy them at half of the face value.

For example, you pay $50 for a $100 bond. The bond is not going to be worth it’s face value until it matures. When purchased electronically they are sold at face value. Example, you pay $100 for a $100 bond. These will be worth face value when you redeem them. The I Bonds are purchased for face value and can only be purchased in paper form.

When redeeming I Bonds or EE Bonds you must have them for at least one year. If you cash them in before five years there is a penalty of three months interest imposed. An example of that would be if you cash in a bond 36 months after you purchase it then you will receive the original amount you purchased it for and 33 months worth of interest.

Bonds can be cashed before the one year only in cases when it is declared a Federal Disaster, but the penalty will still apply on them. Before you cash the bonds in be sure to check and see what they are worth. You can check this online with a savings bond calculator before you go to the bank.