Bonds, especially government and major corporate bonds, also tend to be a safe investment. They can also offer a much higher return than savings accounts. In exchange for higher returns, you give up flexibility because you can't redeem bonds at any time. Bonds earn interest for 30 years, as long as you don't collect them before that date.
You must keep them for at least one year, and if you redeem them after less than five years, you will lose the previous three months of interest. That means bonds make more sense if you can afford to save money in the long run. The Treasury Department offers a savings bond calculator on its website where you can calculate the numbers to see how much you can earn over time. Matthew Frankel, CFP, has no position in any of the stocks mentioned.
The Motley Fool owns shares in the Twitter and Vanguard Total Bond Market ETFs and recommends them. The Motley Fool has a disclosure policy. However, the downside is that bonds can outperform savings accounts in terms of the level of return they can produce. Therefore, a better rate of return may be being traded for greater security by choosing a savings account instead of Series I bonds that can help combat inflation, although Series EE bonds are promised to double in value if you keep the money in a bond for 20 years.
However, many people think that bonds are a better investment right now than simply leaving some of their money in cash. When investing in bonds or opening a savings account, it's helpful to think about what you need each one to do for you. When you invest in a bond, you agree to allow the bond issuer to use your money for a specified period of time.