Quote:
Originally Posted by ScrimpAndSave
I'm new at this...can you tell me the difference between a bond and a CD?
Thanks!  |
A CD is sold by a bank, credit union or brokerage. It typically has a fixed rate (though there are some creative ones out there) and a fixed maturity. Most can be cashed in early, if needed, and you forfeit some of the interest in the process.
Series I savings bonds are sold by the US government. They have a fixed rate component that is set for the life of the bond and a variable rate component that adjusts every 6 months based on inflation. You must hold them for at least 1 year and there is a 3-month interest penalty (see my previous post about trimming this to a 1-month penalty) if you redeem the bond in less than 5 years.
There are tax advantages to bonds. You don't have to pay taxes until you redeem them. I believe they are free of state taxes. Also, there are provisions for avoiding the taxes if you redeem them to pay for college costs.
You can learn more at savingsbonds.gov.