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    • What they are and how to cash them
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    What they are and how to cash them

    Umito Posted on

    Key takeaways

    • A U.S. Savings Bond is a low-risk way to save money, issued by the Treasury and backed by the U.S. government.

    • Savings bonds only pay interest when redeemed by the owner, and they earn interest for 30 years.

    • Electronic bonds can be cashed on the TreasuryDirect website, while paper bonds can be redeemed at most bank branches or credit unions.

    Savings bonds are a type of debt security issued by the U.S. government. Unlike traditional bonds that pay interest regularly, a savings bond is a zero-coupon bond, meaning it only pays interest when redeemed by the owner. The bond is also non-transferable, so it cannot be sold to anyone else, which sets it apart from more traditional bonds.

    If you are considering U.S. Savings Bonds as a personal investment savings planThere are some important details to know about how bonds work.

    What is a savings bond?

    Savings bonds are a simple way for individuals to lend money directly to the government and receive a return on their investment.

    Bonds are sold at a price lower than their face value. For example, a $50 Series EE bond might cost $25. Bonds earn interest, and your winnings are accumulatedwhich means interest is earned on interest.

    U.S. savings bonds differ from traditional bonds in several ways:

    Traditional link

    Savings voucher

    Pay regular cash interest

    Repays accrued interest once you redeem it

    Ripens on a specific date

    Can be redeemed at any time from one year after the date of issue

    Owner pays taxes on interest payments

    The owner can report the interest on taxes as soon as they are received or choose to report them annually.

    Generally subject to local, state and federal taxes

    Only subject to federal taxes

    The buyer can purchase the bond for any amount at any time

    Buyer is limited to $10,000 per series of bonds ($20,000 total) per year

    How Savings Bonds Work

    Savings bonds work by paying interest, and the composed of interest earned. Although a savings bond earns interest over time, it is not paid until the bond is redeemed.

    U.S. Savings Bonds can only be redeemed by the owner and are not resalable. The bond can be redeemed directly from the government or, in the case of a paper bond, from the government or a financial institution.

    U.S. Savings Bonds can be purchased directly from the U.S. government on the Treasury Department website. TreasuryDirect website. Series EE and Series I bonds can be purchased electronically, while Series I paper bonds can only be purchased through December 31, 2024, with your IRS tax refund.

    All electronic savings bonds can be purchased for amounts between $25 and $10,000, while paper bonds are limited to denominations of $50, $100, $200, $500 and $1,000. The maximum that can be purchased in paper bonds is $5,000 per year.

    If a paper bond is lost, stolen, destroyed or otherwise mutilated, a replacement electronic bond may be requested.

    Different types of savings bonds

    American savings bonds are divided into three series, of which only two are still issued:

    Series E Bonds
    The US government first published Series E Bonds to finance itself during World War II, and it continued to sell them until 1980, when Series EE bonds replaced them. Series E bonds are no longer issued.
    Series EE Bonds
    Series EE bonds were first issued in 1980 and continue to be issued today. These bonds may pay a variable rate if issued between May 1997 and April 2005, or a fixed rate if issued in May 2005 or later.
    Series I Bonds
    Series I Bonds offer a higher level of inflation protection than Series EE bonds: they come with a combination of a guaranteed fixed rate and a variable inflation rate set twice a year, depending on the consumer price index.

    Are savings bonds worth it?

    • Security: U.S. savings bonds are issued directly by the Treasury and guaranteed by the U.S. government.

    • Taxes: Only federal income tax applies to savings bonds, not state or local taxes (unless your state has an estate or inheritance tax).

    • Education: In certain circumstances, you can avoid paying taxes on bond interest when the bonds are used to finance higher education. Details are on TreasuryDirect website.

    • Inflation protection for bonds I: Series I bonds provide some protection against inflation because the rate adjusts in response to changes in the consumer price index.

    • EE bonds are guaranteed to double in value: The Treasury guarantees that an EE electronic bond issued in June 2003 or later can be repaid for at least twice its face value in 20 years. See the TreasuryDirect website for more information.

    • Yield: U.S. savings bonds may have lower yields than other savings products. Series EE bonds issued from November to April 2025 yield a rate of 2.60%, while Series I bonds issued during the same period offer a higher yield of 3.11%, which will fluctuate depending on the consumer price index.

    • Flexibility: Savings bonds are not very flexible. They are immobilized for at least one year and incur a penalty corresponding to the interest of the last three months if they are repaid in less than five years.

    • Purchase limits: Individuals are limited to the amount they can invest in savings bonds: $10,000 per year for each series and $5,000 per year for Series I paper bonds.

    How to cash in savings bonds

    Series EE and Series I bonds can be cashed in once they reach one year of age. If you cash out either series before five years, you’ll lose the last three months of interest payments.

    Both sets of bonds pay interest for up to 30 years. The longer you hold the bond, the more interest it earns, but it stops earning interest after the 30-year limit.

    Paper bonds can be redeemed at most bank branches or credit unions, while electronic bonds can be redeemed on the TreasuryDirect website, by logging into your account and following the instructions for redeeming the bond. The cash value of the bond will be credited to your verification Or savings account within two business days of the refund date.

    A minimum of $25 is required to redeem an electronic deposit. There is usually no limit on cashing out paper bonds, but the bank cashing the bonds may place a restriction on the amount you can redeem at one time.

    Savings Bonds vs. Corporate Bonds

    While the US government issues savings bonds, corporate bonds are sold by companies seeking to raise funds to build their capital. The company offers fixed or variable interest rates paid at regular intervals until the bond matures.

    Before investing in a corporate bond, you can check the bond’s rating from three rating agencies: Standard & Poor’s Global Ratings, Moody’s Investor Services, and Fitch Ratings. The highest quality bonds will have a Triple A rating, while the lowest quality bonds will be considered “junk bonds”.

    Unlike savings bonds, you can sell corporate bonds to receive the money earlier than maturity, but you will lose some of its face value. With savings bonds, you cannot sell the bond to another investor. But you can redeem the bond for its face value and interest as early as one year after purchase.

    Savings voucher

    Corporate bond

    Interest

    Yields are generally lower than corporate bonds, for example 3-4%.

    Interest varies greatly depending on what the company offers. Returns can be between 4 and 6 percent.

    Accessibility

    You can cash in a savings bond one year after purchasing the bond. You will lose some interest if you redeem your securities during the first five years.

    To get the full face value of the bond, you must wait until the maturity date. You can sell the bond before maturity, but you will lose part of its face value.

    Security

    Supported by the US Government

    Issued by the company and sometimes backed by company guarantees. Corporate bonds are riskier than U.S.-guaranteed savings bonds.

    Savings Accounts vs. Savings Bonds

    Savings bonds and many savings accounts are guaranteed by the U.S. government, although there are some differences between the two when it comes to the rate of return and accessibility of your funds.

    Savings accounts

    Savings Bonds

    Interest

    Many high-yield savings accounts currently earn higher interest than savings bonds.

    Series EE bonds currently earn less interest than many savings accounts, while Series I bonds generate a return more in line with competing savings accounts.

    Accessibility

    Money can generally be withdrawn up to six times per month without penalty. Some banks do not impose a limit on the number of possible withdrawals, giving you maximum accessibility.

    A bond cannot be redeemed for at least one year, with a penalty if redeemed before five years.

    Security

    Supported by the US Government

    Supported by the US Government

    You can use a savings account when you need to build your savings but still need to be able to withdraw funds at any time, while you can use a savings bond to receive guaranteed returns as part of a investment strategy.

    Conclusion

    Savings bonds are among the safest types of investmentas safe as any type of government backed investment such as high yield online savings accounts. Some factors to consider before investing in a savings bond include the interest rate offered and when you will want to access the funds.

    Another safe alternative to savings bonds and savings accounts is certificates of deposit. These sometimes earn higher rates and are usually offered by federally insured banks and credit unions.

    – Freelance writer Sarah Georges contributed to updating this article. Editor James Royal, Ph.D. contributed to previous versions of this article.

    Umito
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