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Is a Bond Better than a Bank Account

by Jim ONeil on May 26, 2011

in Personal Finance Tips

This is one of those questions where the answer is dictated by the investors needs. In this case, are you sure you will not need the money for a specific period of time? If the answer to that question is yes, then the bond is the far better deal.

Standard savings accounts pay a very low rate of interest, but the investor has access to their money any time they need it. If the account has no minimum balance requirements, they can literally drain the account down to its last cent without paying any penalties.

For people that are just beginning to save and do not have a “rainy day” fund, this may be the better option.

If the money will definitely not be needed in the near future, the bond is the better choice. While bonds pay a higher interest rate, they also require the money not to be touched during the term. There are shorter lengths available, but the interest rate on those will be fairly low and comparable to a savings account.

If the money is locked into a multi-year bond, the interest rate will be significantly higher. These types of bonds are perfect when establishing an educational fund for a child or even when saving for a home that you are years away from purchasing.

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