What U.S. Savings Bonds Are

A U.S. Savings Bond is a debt security issued by the U.S. Department of the Treasury. When you buy one, you're lending money to the federal government, and they promise to pay you back with interest after a set period. The government uses the money you lend to fund operations; you receive a may provide return on your investment.

Savings bonds are different from stocks or mutual funds because the government backs them — there's no company performance to worry about, no market swings that can wipe out your principal. The trade-off is that the interest rate is typically lower than what you might earn elsewhere, and your money is locked in for a minimum period before you can cash out without penalty.

The Treasury sells two main types of savings bonds to individual buyers: Series EE bonds and Series I bonds. Each works differently and serves a different financial goal.

Key Takeaways

  • Series EE bonds are sold at half their face value and double in value over 20 years, with a fixed interest rate that applies for the life of the bond.
  • Series I bonds have an interest rate that changes every six months based on inflation, making them useful when you want protection against rising prices.
  • You must hold a savings bond for at least one year before you can cash it in, and cashing it in before five years means you lose the last three months of interest.
  • Savings bonds are purchased directly from TreasuryDirect.gov, not through banks or brokers, and you can buy them in electronic form only.
  • The interest earned on savings bonds is subject to federal income tax but exempt from state and local taxes, and may be tax-free if used for education expenses.

Series EE Bonds: Fixed Interest and may provide Growth

A Series EE bond is sold at a discount — you pay half the face value. For example, you pay $50 for a $100 bond. The bond earns interest at a fixed rate set by the Treasury, and after 20 years, it's may provide to be worth at least double what you paid. If the fixed interest rate doesn't naturally double the bond in 20 years, the Treasury makes up the difference.

The fixed interest rate on new Series EE bonds is set every six months (in May and November) and remains the same for the entire 30-year life of the bond. This predictability appeals to people who want to know exactly what their money will be worth at a specific point in the future. You can hold a Series EE bond for up to 30 years, though most people cash them in after 20 when the doubling may provide is met.

Series EE bonds are often used for long-term savings goals like a child's education or a down payment on a home, because the timeline is clear and the outcome is may provide. However, the current fixed rates are modest — typically less than 2% annually — so inflation can erode the real value of your money over time.

Series I Bonds: Protection Against Inflation

A Series I bond is sold at face value — you pay $100 for a $100 bond — and its interest rate changes every six months. The rate is made up of two parts: a fixed rate (set by the Treasury and locked in for the life of the bond) plus an inflation rate (adjusted twice yearly based on the Consumer Price Index). When inflation rises, your I bond's interest rate rises with it.

Series I bonds are designed to protect your purchasing power when prices are climbing. If inflation is high, your I bond earns more interest. If inflation drops, your rate drops too, but the fixed portion ensures you always earn at least some interest. The combined rate is announced in May and November and applies to all bonds purchased in the following six months.

Like Series EE bonds, I bonds must be held for at least one year and have a penalty if cashed before five years (you lose the last three months of interest). They can be held for up to 30 years. Series I bonds are popular during periods of high inflation because they offer a direct hedge against rising costs, though the rates can be lower during deflationary periods.

How to Buy Savings Bonds and Hold Them

You purchase U.S. Savings Bonds directly from TreasuryDirect.gov, the official Treasury website. You cannot buy them through a bank, broker, or financial advisor. You'll need to create an account, verify your identity, and link a bank account for purchases and redemptions. All savings bonds sold today are electronic — there are no paper certificates.

You can buy up to $10,000 in electronic Series EE or Series I bonds per calendar year per person. If you receive a tax refund, you can also purchase up to $5,000 in paper Series I bonds through your tax return, though this option is less common. Once purchased, your bonds are held in your TreasuryDirect account and tracked electronically.

Your bonds earn interest every month, though you don't see the money until you cash them in. The Treasury posts the current interest rates and the value of your holdings to your account, so you can check your balance anytime. You own the bond until you decide to redeem it or it reaches final maturity at 30 years.

When You Can Cash In Your Bonds and What It Costs

You must hold a savings bond for at least one year before you can redeem it. If you cash it in before five years have passed, you lose the last three months of interest as a penalty. After five years, you can redeem without penalty. Most people cash in their bonds after they've met their goal or when they need the money, which is typically well past the five-year mark.

When you redeem a bond through TreasuryDirect, the proceeds are deposited directly into your linked bank account, usually within a few business days. There's no fee to redeem. The amount you receive is the bond's current value — the original purchase price plus all interest earned, minus any penalty if applicable.

If you hold a Series EE bond past 20 years or an I bond past its maturity date, it stops earning interest. At that point, there's no reason to keep it — you should redeem it and move the money elsewhere. The Treasury will eventually stop paying interest altogether, so letting a bond sit past maturity means you're leaving money on the table.

Taxes on Savings Bond Interest

The interest you earn on savings bonds is subject to federal income tax but exempt from state and local taxes. You have two options for when to pay the tax: you can report the interest each year as it accrues (even though you haven't received the money yet), or you can wait and report all the interest in the year you redeem the bond. Most people choose to wait and report it all at redemption, which is simpler.

If you use the proceeds from a Series EE or Series I bond to pay for may have access to education expenses — tuition and fees at an accredited college, university, or vocational school — the interest may be tax-free. This is called the Education Savings Bond Program. You must meet income limits, purchase the bonds in your name (not your child's), and use the money in the same year you redeem the bond. The rules are specific, so check the Treasury's guidance if education funding is your goal.

Comparing Savings Bonds to Other Savings Options

Savings bonds compete mainly with high-yield savings accounts, money market accounts, and certificates of deposit (CDs). A high-yield savings account currently offers rates comparable to or higher than Series EE bonds, with the advantage that your money is accessible anytime without penalty. However, savings accounts are FDIC-insured only up to $250,000 per bank, whereas savings bonds have no deposit limit.

Series I bonds are harder to compare because their rate changes with inflation. During high-inflation periods, I bonds often outpace savings accounts and CDs. During low-inflation periods, they may underperform. The key difference is that I bonds lock in your purchasing power — you're protected if inflation spikes — whereas a savings account's rate can drop at any time.

Savings bonds also lack liquidity. You can't access your money for a year, and accessing it before five years costs you interest. If you might need the money sooner, a savings account is more practical. Bonds are best for money you know you won't touch for at least five years and ideally longer.

Frequently Asked Questions

Can I buy savings bonds for someone else, like a grandchild?

You can purchase a bond in someone else's name if you have their Social Security number, but you must be the registered owner. The bond is yours until you transfer it or it's inherited. Some people buy bonds as gifts, but the recipient doesn't own it until ownership is formally transferred, which happens after your death or by your request through TreasuryDirect.

What happens if I need my money before the one-year minimum?

You cannot redeem a savings bond before one year has passed — there are no exceptions. If you need the money sooner, you'll have to wait or find it elsewhere. This is why savings bonds are only suitable for money you're certain you won't need for at least 12 months.

Which type of bond should I buy, EE or I?

Series EE bonds work well if you want predictability and a may provide doubling of your money over 20 years. Series I bonds work well if you're concerned about inflation eroding your savings. If inflation is high, I bonds typically earn more. If you want a fixed, known return, EE bonds are simpler. Many people own both.

Do I lose money if I redeem early?

You don't lose principal, but you lose interest. If you redeem before five years, you forfeit the last three months of interest earned. After five years, you can redeem at full value with no penalty. The longer you hold, the more interest you keep.

Can I check my bond values online?

Yes. Log into your TreasuryDirect account anytime to see the current value of each bond, the interest earned to date, and the maturity date. The Treasury updates values monthly, so you can track your progress toward your savings goal.