If you are looking for a safe way to get a higher rate of interest, Ginnie Mae bonds can be a good choice. These unique bonds are backed by home mortgages, but unlike other mortgage bonds, Ginnae Maes are backed by the full faith, credit and taxing power of the U.S. government. That government guarantee means that as an investor you are assured of getting your principal back, while at the same time earning a competitive rate of interest.
Contact your broker and ask for the bond department. Inform the representative that you wish to purchase an individual Ginnae Mae bond.
Ask about the minimum investment for buying an individual Ginnae Mae bond. Make sure you have enough in your account to make the purchase.
Complete the paperwork required to purchase the Ginnae Mae bond. Indicate whether you want the interest generated by the bond to be paid to you directly or held in your account.
Keep a copy of the purchase confirmation with your tax records. If the Ginnae Mae bond is held in a taxable account you will need to pay taxes on the interest it generates.
Contact several low cost mutual fund companies and request prospectuses for their Ginnae Mae bond funds. Most major mutual fund families, including low cost operators Vanguard, TIAA-CREF and Charles Schwab, offer Ginnae Mae bond funds to their clients.
Review the prospectuses carefully, particularly the sections dealing with fees and expenses. The performance on Ginnae Mae bond funds should be similar, so higher fees can really eat into your return.
Check the average maturity on the Ginnae Mae bond fund. This information should be near the front of the prospectus. Look for a fund with an average maturity of only a few years. Funds with a longer average maturity might be negatively affected if interest rates rise. The principal of the underlying bonds is guaranteed by the government, but the net asset value of the fund would fall as interest rates go up.
Complete the application for the Ginnae Mae fund you want to buy, and send it, along with your check, to the address listed on the form. Some mutual fund companies use a separate address for overnight mail, so be sure you are sending your application to the right address.