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US Savings Bond Formula:
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The US Savings Bond formula calculates the current value of savings bonds based on the purchase amount, annual interest rate, and years held. It uses semi-annual compounding to determine the bond's worth over time.
The calculator uses the savings bond formula:
Where:
Explanation: The formula accounts for semi-annual compounding, where interest is applied twice per year, making it more accurate than simple annual compounding for savings bonds.
Details: Calculating bond values helps investors understand the growth of their investments over time, plan for future financial goals, and make informed decisions about bond purchases and redemptions.
Tips: Enter the purchase amount in USD, annual interest rate as a decimal (e.g., 0.05 for 5%), and years held. All values must be valid (purchase amount > 0, interest rate ≥ 0, years ≥ 0).
Q1: What are US savings bonds?
A: US savings bonds are government-issued debt securities that pay interest over time, offering a safe investment option backed by the US Treasury.
Q2: How does semi-annual compounding work?
A: Interest is calculated and added to the principal twice per year, which results in higher returns compared to simple annual compounding due to the compounding effect.
Q3: What is the minimum investment for savings bonds?
A: The minimum purchase amount for electronic savings bonds is $25, while paper bonds have different minimum requirements depending on the bond type.
Q4: Are savings bonds taxable?
A: Interest earned on savings bonds is subject to federal income tax but exempt from state and local taxes. Tax can be deferred until redemption or maturity.
Q5: What happens when a savings bond matures?
A: Savings bonds stop earning interest when they reach final maturity (typically 30 years). Bondholders should redeem matured bonds to reinvest the funds.