What Are Savings Bonds?

Savings Bonds Explained

person in polka-dot white shirt looking intently at laptop screen
•••

fizkes / Getty Images

Savings bonds are securities issued by the U.S. Treasury to pay for the government’s debts. By purchasing a bond, everyday buyers lend money to the U.S. government. Then, when a bond matures, generally at a 20-year or 30-year term, you can cash it in for its face value, which has accumulated interest over the years. U.S. savings bonds are considered one of the safest investments you can make because they are backed by the government. 

Learn how savings bonds work and how they may affect your finances.

Definition and Examples of Savings Bonds

Savings bonds are Treasury-backed debt securities. The government uses the money it receives from sales of savings bonds to pay for debt. As a consumer, you’ll collect interest once the bond matures, either when you cash it in or as long as 30 years, making it a safe investment.

Savings bonds are often purchased as a gift. If a friend or relative is having a baby, for example, you can give a savings bond as a gift for the new child. The child can then cash it in whenever they want, like when they graduate from college or want to buy a home of their own. They will receive the original investment, plus whatever interest was earned.

Minors are legally able to hold U.S. savings bonds, giving you the ability to put the investment in a child’s name.

Alternate names: Treasury bonds, Series EE bonds, Series I bonds

How Savings Bonds Work

There is a process for how savings bonds affect both you and the government, all of which is detailed below. 

Buying bonds

To buy savings bonds, you can purchase online directly through TreasuryDirect.gov. You’ll create an account and then select the type of savings bonds you want to buy, either Series EE or Series I. Both types are bought at face value, which means you’ll pay $50 for a $50 bond. You can buy any amount in savings bonds, even down to the penny, with a minimum of $25 for online payments.

You can buy a bond online at any time and even set up recurring debits from your bank account if you want to buy bonds on a consistent basis. You can register bonds in your own name or as gifts to others. If you choose the latter, the recipient will also need a TreasuryDirect account, but you can still purchase bonds for them until they complete their account registration.

For both types of bonds, you can acquire up to $10,000 in each, as long as they’re bought online through TreasuryDirect. Bonds you receive as gifts also count toward the limit. The two exceptions to this rule include if a bond is transferred to you due to the death of the original owner or if you own a paper bond issued before 2008.

Redeeming bonds

You can redeem your bonds anytime after the first year of purchase. Keep in mind, though, that you won’t get the full interest if you cash in before five years. You can earn interest for up to 30 years.

Interest

The interest you earn depends on the series you buy and when you buy it. For instance, if you buy $1,000 in Series EE bonds, it will be twice as much as what you paid for it when you cash out in 20 years, regardless of the rate. The Series I interest rate changes every six months based on its fixed rate and inflation, affecting the return. Currently, Series I earns interest at 3.54%. 

Series EE bonds that have been issued since May 2005 earn a fixed rate of interest, so you know the exact rate of interest it will earn upon purchasing it. For a Series EE bond bought from May 2021 through October 2021, the rate is .10%.

Interest is earned every month and compounded twice a year until the bond reaches 30 years or you cash it in, whichever comes first.

Taxes

Savings bonds are exempt from state and local income taxes. When you complete your tax return, you’ll report interest either every year or whenever one of these things happens first: the bond matures, you cash in the bond, or you give up ownership and the bond is reissued. 

Interest incurred from a savings bond is subject to federal income tax, as well as any federal estate, gift, and excise taxes.

Types of Savings Bonds

There are two types of savings bonds you can buy right now: Series EE and Series I.

  • Series EE: These types of bonds earn fixed interest and right now are at 0.10%. After 20 years, your bond will be worth twice as much as you paid for it, regardless of the rate. You can buy at least $25 in Series EE bonds, paying the face value of it. You can only buy Series EE online.
  • Series I: This type of bond earns both a fixed interest and a rate that is set twice a year based on inflation. If you buy one right now through October 2021, you’ll get a 3.54% interest rate. You can buy Series I electronically or in paper form through your federal tax refund. You can buy up to $10,000 in Series I bonds if you purchase online, but up to just $5,000 if you buy paper bonds.

Savings Bonds vs. Traditional Bonds

Savings bonds and traditional bonds are similar but not quite the same. Here’s how they differ:

Savings Bonds Traditional Bonds
Interest is earned monthly, compounded semiannually, and pays out when redeemed. Interest grows over time and pays out regularly.
Can only be bought through TreasuryDirect or through your tax return. Can be bought through a broker. 
Taxable only at the federal level. Taxable at the state and federal levels.
Can purchase up to $10,000 of each series. No limit to how much you can buy.
You pay taxes on interest once the bond is redeemed. You pay taxes on interest payments when they are regularly paid out.

Alternatives to Savings Bonds

Savings bonds are one of the safest investments you can make since they are backed in full faith by the government. But there are other places where you can put your money.

  • Savings accounts: These accounts have one of the lowest rates of return. Some of the best savings accounts right now have annual percentage yields less than 1%. Compare that to the stock market, where you can expect a 10% average return. Keep in mind that investing in the stock market carries more risk and you could potentially lose money. Placing funds in a savings account limits the risk. 
  • CDs: Certificate of deposit accounts are available at banks and have various terms, with some ranging from three months to five years. These accounts also never lose money, but you don’t have immediate access to them—you can only access them when the terms end. CD rates are about the same as savings accounts, but the longer your term, the higher your annual percentage yield (APY).

Key Takeaways

  • Savings bonds—issued by the U.S. Treasury—are debt securities; the government uses the money you give them as a loan to fund their needs. 
  • You can cash in savings bonds after a year, but you won’t earn money on them if you redeem before five years. You can keep these bonds for up to 30 years.
  • You can buy savings bonds at face value, with the expectation that interest rates will help increase the amount you eventually incur.
  • Savings bonds are bought online through the Treasury Department, and you can buy up to $10,000 of each type of series (Series EE and Series I).

Frequently Asked Questions (FAQs)

Where can you cash in savings bonds?

Through your online account at TreasuryDirect.gov, a branch of the U.S. Securities and Exchange Commission (SEC).

Where can you buy savings bonds?

Through your online account at TreasuryDirect.gov or, if buying Series I bonds, either online or through your federal tax return.

How do you find lost savings bonds?

If you lost a savings bond, complete FS Form 1048 and show a description of the bond on the form. Include the bond serial number or, if you don’t have that, include the specific month and year of purchase, the Social Security number of the buyer or who it was gifted to, and complete names and addresses. If you’re looking for lost savings bonds for deceased family members, you’ll also need to include a death certificate. All of your documents will need to be mailed to the Treasury Department.

How do you buy savings bonds for someone else?

Online through TreasuryDirect.gov.