Government savings bonds are generally deemed risk free because they are backed by the full faith and credit of the federal government. Most investors feel confident that the U.S. government will not default on its obligations to bond holders. However, there are other types of risk to consider.
Perhaps the biggest risk you face when buying government savings bonds is inflation risk. Most savings bonds have interest rates that are pegged to other government securities and are not adjusted for inflation (the exception is Series I bonds, which are adjusted semiannually for inflation). As inflation goes up, the spending power of your dollars goes down. With government securities, there is always the risk that inflation will outpace your rate of return, effectively diminishing the spending power of your savings.
Interest rate risk is also a factor for EE bonds purchased through April of 2005. For these bonds, the interest rate is pegged to an average yield of other government securities. Their return, and the risk, is directly tied to how those government securities perform. If interest rates go down, returns will be affected. For purchases on or after May 1, 2005, however, EE bonds earn fixed rates of interest.
If you have questions or need assistance, contact the Experts at Henssler Financial:
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- Email: experts@henssler.com
- Phone: 770-429-9166
Disclosures: The following information is reprinted with permission from Forefield, a division of Broadridge Financial Solutions, Inc. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
