Israel Bonds – Why I would gift them instead of US Saving Bonds

Israel BondsThere are very few bonds that can be bought in small amounts.  In fact, I know of only three bonds for purchase in the United States that are sold in increments under $100. They are the EE Savings Bonds, I Savings Bonds and eMitzvah bonds which are a type of Israel bond.  Saving bonds bond can bought in penny increments, starting at $25.00. eMitzvah bonds are sold in the following amounts $36, $54, $72 and $90 dollars. (Eighteen and multiples of it are lucky numbers in Judaism).

  To see a list of high yielding CDs go here.  

What are Israel bonds?

Israel bonds are bonds issued by the State of Israel, specifically designed to be purchased by Americans as a gifts. Israel bonds fund the general operations of the national government of Israel, similar to how a US savings bonds fund the US Government. Israel bonds are denominated and pay interest in US dollars, so you don’t need Israeli Shekels to buy them. While the majority of eMitzvah bond purchasers are Jewish, Israel bonds are available to all US residents.

 

How are Israel bonds different than US savings bonds?

US Savings Bonds currently being issued stop accumulating interest 30 years after purchase. Israel bonds have maturities ranging between 2 and 10 years.

There are two types of US savings bonds

  1. I-bonds, which pay a variable interest rate that changes with inflation
  2. EE bonds that pay a fixed rate until maturity.

There are are six different types of Israel Bonds

Israel Bonds are available in a variety of denominations starting at 36. However, the larger the minimum denomination and longer the maturity, the higher the interest rates. Maturities range from 2 to 10 years.

Name

Denominations

Maturities Available

As of 2/15/2013

Interest Rates

As of 2/15/2013

Jubilee Bonds

$25,000 Minimum

$5,000 Increments

2

3

5

10

1.01%

1.35%

2.31%

3.75%

Maccabee Bonds

$5,000 Minimum

$500 Increments

2

3

5

10

0.76%

1.10%

2.01%

3.43%

Sabra Bonds

$1,000 Minimum

$100 Increments

3

1.00%

Mazel Toz Bonds

$100 Minimum

$10 Increments

5

1.68%

eMitzvah Bonds

$36 Minimum

$18 Increments

5

1.68%

Floating Rate LIBOR Bonds

$5,000 Minimum

$500 Increments

$100,000 Minimum

$25,000 Increments

2

3

5

2

0.4% + 6 Month LIBOR

0.5% + 6 Month LIBOR

0.7% + 6 Month LIBOR

0.6% + 6 Month LIBOR

 

When do Israel Bonds pay interest?

Jublilee and Maccabee bonds pay interest on May 1st and November 1st. Sabra, Mazel Tov and eMitzvah bonds pay interest at maturity. Floating Rate LIBOR Bonds pay interest June 1st and December 1st.

 

The Biggest Difference: Israel versus the United States

There is a chance that Israel will not be able to repay its debt obligations. In the history of State of Israel, through multiple wars, Israel has never missed a bond payment. However, there are significant risks that Israel must contend with that the United States doesn’t: Specifically, its neighbors are in position to do significant damage to Israel’s economy by forcing the country to spend its resources on defense, or by making it more difficult to conduct international trade. This danger is reflected in Israel’s credit rating, which is lower than the United States. However, Israel has never defaulted on a bond through its entire history. The US dollar denominated debt of Israel  is rated A+ by S&P and A1 by Moody’s.  Two other countries that are rated “A+” by S&P are China and Chile.

 

Why is the idea of giving Israeli bonds as a gift appealing?

1) 5 year bonds pay an attractive yield, higher than most CDs and almost triple the amount of saving bonds.

2) Israel bonds can serve as a platform for discussion in multiple ways. Parents can use this question to explaining the following ideas:

  • Who borrows money? What are the different types of borrowers?
  • Are all investments equally safe?
  • Why do certain financial instruments pay more than others? (The concept of risk and return.)

3) Support Israel – If you are a zionist, you are in a small way helping Israel with each purchase.

Are Israel Bond’s taxable?

Yes. There are no tax benefits for owning Israel bonds. Interest is taxed just like interest on a corporate bond.

Can I sell a bond after purchase?

No. You are not able to sell Israel Bonds, and redeeming the bonds prior to maturity can be difficult. In short, one should not invest in Israel Bonds unless you plan to hold the bonds to maturity.

How to Purchase

Israel Bonds are specifically designed for purchase by US residents. However, you cannot buy Israel Bonds through a normal brokerage account. You will need set up an account with the United States Development Corporation For Israel. To set-up an online account and purchase bonds, go here.

 

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