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U.S. savings bonds

Learn what U.S. savings bonds are, how Series EE and Series I work, how to buy and redeem them, tax rules, pros and cons, and practical tips for using them as a safe place to save.

What U.S. savings bonds are

U.S. savings bonds are low-risk government savings you buy from the U.S. Treasury. They are not stocks. They are a kind of loan you make to the government. In return, the government pays interest. These bonds are meant for saving, not trading. You cannot sell them on the market.

The two common types today are Series EE and Series I. Both are safe and backed by the U.S. government. They earn interest and have rules about when you can cash them.

Main types

  • Series EE
    • Fixed interest rate set when you buy.
    • Guaranteed to at least double in value if held for 20 years for bonds issued since 2005.
    • Earns interest for up to 30 years.
  • Series I
    • Has a composite rate that protects against inflation.
    • Composite rate = fixed rate plus an inflation adjustment based on CPI-U.
    • Rate is adjusted twice a year, and interest compounds every six months.
    • Also earns for up to 30 years.

How interest works

  • Interest accrues monthly and compounds every six months.
  • For I bonds the Treasury publishes a composite rate every May and November. Your bond gets the rate that applies for each six month period after you buy it.
  • For EE bonds the fixed rate is set at issue and does not change.

How to buy

  • TreasuryDirect.gov is the main place to buy electronic EE and I bonds.
    • Minimum electronic purchase is usually $25.
    • Annual purchase limits: $10,000 per person for electronic EE and $10,000 per person for electronic I bonds. You can also buy up to $5,000 in paper I bonds using your federal tax refund.
  • You can buy bonds as gifts through TreasuryDirect or set up accounts for kids or trusts.
  • Paper bonds are mostly phased out. Paper I bonds are still available only when you elect them using your federal tax refund.

How to redeem

  • You must hold savings bonds at least one year before redemption.
  • If you redeem within five years you lose the last three months of interest as a penalty.
  • After five years there is no penalty.
  • Redeem electronic bonds in your TreasuryDirect account. Redeem paper bonds at most banks or by sending them to Treasury.

Taxes

  • Interest is subject to federal income tax.
  • Interest is exempt from state and local income tax.
  • You can defer reporting interest until you cash the bond or until it stops earning at 30 years.
  • There is a possible tax benefit if you use bond proceeds for qualified higher education. Rules and income limits apply. Keep records and check IRS rules when you redeem.

Ownership and transfer

  • Bonds can be owned by an individual, jointly, or with a beneficiary.
  • You can gift bonds or transfer them in certain ways. Transfers must follow Treasury rules.
  • For minors you can hold bonds in the child’s name with a custodian.

Pros and cons

Pros

  • Backed by the U.S. government, very low risk.
  • I bonds protect you from inflation.
  • Interest is free from state and local taxes.
  • Simple to buy and hold in TreasuryDirect.

Cons

  • Lower returns than many stocks or bond funds over long periods.
  • Limited annual purchase amounts.
  • Must hold at least one year. Early redemptions cost interest.
  • Not liquid the way a savings account is.

Practical tips

  • Use I bonds when you want protection from inflation and low risk.
  • Use EE bonds if you want a guaranteed long term return and can hold for at least 20 years.
  • Keep purchase records and TreasuryDirect login information safe.
  • If you plan to use bonds for college, check the education tax exclusion rules before redeeming.
  • Compare current Treasury rates before buying. Rates change and affect which bond is better today.

Quick example

You buy a $1,000 I bond. It starts earning a composite rate that combines a small fixed rate and an inflation adjustment. Interest is added monthly and compounds every six months. If inflation rises, the bond’s rate goes up at the next six month reset. If you need the money within a year, you cannot cash it. If you cash it in year three, you lose three months of interest.

Final note

U.S. savings bonds are simple, safe tools for steady saving. They are not the fastest way to grow money, but they protect principal and can beat inflation with I bonds. For small savers, people near retirement, or anyone wanting a safe, tax-favored place to park funds, they deserve consideration. Check TreasuryDirect for current rules and rates before you buy.

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