Yes, savings bonds increase in value, but the growth is slow and predictable

Savings bonds do increase in value from the moment you buy them. The U.S. Treasury adds interest to your bond every month, though you don't see that money until you cash it in. The amount of growth depends on which type of bond you own — Series EE bonds and Series I bonds work differently, and the interest rate on Series I bonds changes twice a year based on inflation.

The key thing to understand is that savings bonds are not stocks. You won't see dramatic jumps in value. Instead, you're may provide a specific return that compounds over time. The trade-off is safety: your money is backed by the U.S. government, and you can't lose what you put in.

Key Takeaways

  • Series EE bonds are may provide to double in value over 20 years, meaning a $50 bond will be worth at least $100 after two decades.
  • Series I bonds earn interest in two parts: a fixed rate set when you buy, plus a variable rate that adjusts every six months based on inflation.
  • Interest compounds monthly on both types, but you won't receive any money until you cash the bond in or it reaches final maturity.
  • You must hold a savings bond for at least one year before cashing it, and you'll lose the last three months of interest if you cash it before five years.

How Series EE bonds grow

Series EE bonds come with a may provide doubling feature. If you buy a $50 EE bond, the Treasury guarantees it will be worth at least $100 after 20 years, no matter what happens to interest rates. This means the bond earns whatever interest rate is necessary to reach that doubling point.

The current fixed interest rate on new Series EE bonds is set by the Treasury and changes every six months — in May and November. That rate stays the same for the entire life of your bond. The interest compounds every month, meaning you earn interest on your interest. After 20 years, if the compounded interest hasn't already doubled your money, the Treasury makes up the difference.

After 20 years, a Series EE bond stops earning interest at the doubling rate and continues earning at the current fixed rate. The bond can be held for up to 30 years total, so you can keep it longer if you want, but the may provide doubling ends at year 20.

How Series I bonds grow

Series I bonds are designed to protect you from inflation. They earn interest in two separate pieces: a fixed rate that never changes, plus a variable inflation rate that adjusts every six months. The inflation rate is based on the Consumer Price Index and is announced by the Treasury in May and November.

When you buy an I bond, you lock in both rates for the first six months. After that, the fixed rate stays the same for the life of the bond, but the inflation rate changes twice a year. If inflation is high, your I bond earns more. If inflation drops, your earnings slow down, but the fixed rate portion keeps working for you.

Like EE bonds, the interest on I bonds compounds monthly. You can hold an I bond for up to 30 years. The current fixed rate and inflation rate are published on the Treasury website, so you can see exactly what you're buying before you purchase.

When you can access your money

Savings bonds have a one-year holding requirement. You cannot cash in a bond during its first year of ownership, no matter what. This is a hard rule with no exceptions.

If you cash in a bond between one and five years, you lose the last three months of interest. This penalty exists to discourage early withdrawal. After five years, you can cash the bond without any interest penalty, though you still receive whatever interest has accumulated up to that point.

You cash in savings bonds through your bank or through TreasuryDirect, the government's online platform. The process takes a few days, and the money is deposited into your account. You'll receive a 1099-INT form at tax time reporting the interest you earned.

The difference between purchase price and face value

Series EE bonds are sold at a 50 percent discount. You pay $50 for a bond with a $100 face value. This doesn't mean you're getting a deal — it's just how the pricing works. The bond grows from $50 toward $100 (and beyond) as interest accumulates.

Series I bonds are sold at face value. You pay $50 for a $50 bond, $100 for a $100 bond, and so on. The value increases only through interest, not through a built-in discount.

How interest rates affect your bonds

If you own a Series EE bond, the fixed rate you locked in when you bought it is what you get for the life of the bond. Changes in Treasury rates or market conditions don't affect your rate. This is both a benefit and a limitation — if rates rise sharply, your EE bond still earns the same rate you bought it at.

Series I bonds are more responsive to rate changes because the inflation portion adjusts twice yearly. If inflation spikes, your next rate adjustment will be higher. If inflation falls, your next adjustment will be lower. The fixed portion never changes, so you always have that baseline earning power.

Taxes on savings bond interest

Interest earned on savings bonds is subject to federal income tax, but not state or local tax. You have two choices for when to pay: you can report the interest each year as it accrues (even though you haven't received the money), or you can wait and report all the interest in the year you cash the bond.

Most people choose to report it all at once when they cash in the bond, since they don't receive the money until then. When you cash in a bond, you'll receive a 1099-INT form showing how much interest you earned. If you hold the bond until it reaches final maturity (30 years), you'll report the interest in that final year.

Frequently Asked Questions

Can I lose money on a savings bond?

No. You cannot lose the principal you invested. Series EE bonds are may provide to at least double, and Series I bonds will always be worth at least what you paid for them. The only way you receive less than you put in is if you cash before five years and lose the last three months of interest.

What's the difference between a savings bond and a Treasury bond?

Savings bonds are designed for individual savers and have restrictions like the one-year holding requirement and the five-year interest penalty. Treasury bonds (and Treasury notes and bills) are sold in larger denominations and can be bought and sold on the secondary market. Savings bonds cannot be resold.

Should I buy Series EE or Series I bonds?

Series EE bonds are better if you want predictability and don't expect high inflation. Series I bonds are better if you're concerned about inflation eroding your savings. Check the current rates on TreasuryDirect — sometimes one type offers a better fixed rate than the other.

Do I have to buy savings bonds through TreasuryDirect?

For paper bonds, you can buy them through your bank or employer payroll savings plan. For electronic bonds (which are easier to manage), you must use TreasuryDirect. Paper EE bonds are no longer sold as of 2012, so new purchases are electronic.

What happens if I never cash in my savings bond?

After 30 years, the bond reaches final maturity and stops earning interest. At that point, you should cash it in and move the money somewhere else. If you don't cash it, the money just sits there earning nothing.