Government bonds seem like a confusing idea best left to economists and other financial experts. When you hear terms like “securities” and “maturity”, you may feel intimidated and opt not to invest in them. However, government bonds are simply loans the government takes from the public to fund its needs. This idea was popularized in World War II, when the US government encouraged citizens to buy war bonds to fund its war effort. This public debt helps fund many of the government programs.
Buying bonds is considered safer than buying from the stock market, because bonds are backed by the full faith and credit of the government. Simply put, this means that the government guarantees the value of your bonds. While the stock market may collapse, or a bank may fail and make your stocks worthless, the government provides the safest investment for your money. There are also other advantages of buying bonds – they are exempt from taxes, giving you a lot of savings you can put to good use.
When you are issued bonds, you buy them at a discounted value and redeem them after a set time, also known as their “maturity”. Bonds have a fixed interest rate and can only be redeemed after the set time.
Now that you have some background about the nature of government bonds, here are the different ways for you to cash a mature government bond.
- If your bonds are in your bank, brokerage, or Treasury Direct account, the bonds will be cashed in automatically. The money will be registered in your name at your account. You can deposit T-Notes, T-Bonds and Agency bonds directly into your brokerage account by presenting them to the appropriate government agency. Make sure to contact your bank’s branch manager to find out your bank’s specific policies. However, since most bonds appear in certificate form, and require verification at a bank or your broker in order to redeem their cash value.
- You can also cash your bond personally. While most banks offer the service of redeeming government bonds, it is advisable to call ahead before bringing your bonds to the bank. Most will require several forms of identification, and it is best for you to be prepared with several samples, such as your driver’s license and passport. Brokers will take care of redeeming your bonds and depositing the money into your account. You should choose a bank where you have an active account – other banks may have more stringent requirements and limit your redemption to a fixed amount.
Online services may also be offered by your government for electronic bonds. Inquire at your bank for advice on these matters. Online accounts may also be used to convert paper bonds to electronic bonds, and may also be used to transfer the funds to your bank account. These websites may require you to present basic information, such as your social security number or driver’s license number.
While bonds are a great way to help your government fund its programs, they also entail risks. Most bonds take several months or years to mature, and you cannot redeem these bonds until that set date. Moreover, the value of your money is dependent on inflation: if the inflation rate is greater than your interest rate, your money actually loses value instead of giving you a return on investment. You can find out more by inquiring at your local bank manager or checking out your government treasury’s website.