How Do Savings Bonds Work?

How Do Savings Bonds Work

Savings bonds are an investment instrument suggested by the federal government. When you buy any savings bond, you loan money to the U.S. government in dealings for a return at a future date.

What Is a Savings Bond?

Savings bonds are debt guarantees that fund U.S. government spending. They are considered one of the safest investments because they are assured by the federal government.

Features of Savings Bonds

These bonds are available in small sects, with a face value between $25 and $10,000. Face value, also known as a par value, is the amount that will be paid when the bond matures or comes as expected.

Savings Bonds Features:

Interest: Savings bonds earn interest at a nominal rate on the investment amount.

Taxes: Interest is taxable, but it is postponed until you cash the bond. These bonds are not subject to state or local taxes in the USA.

Transferability: You can reposition savings bonds to another person at no charge as soon as five days after purchasing them.

Age requirements: Any Minors can hold these bonds in their own names.

Payroll Savings Plan: With a payroll saving plan, you can deposit part of your paycheck straight to your Treasury account to automatically purchase these bonds.

How Do Savings Bonds Work?

The purchase price of these bonds is identical to their face value. You pay $100 for a $100 savings bond, but the value of the bond grows over time.

US Savings bonds come in two versions: Series EE and Series I.

Series EE: These bonds have a fixed interest rate for the vitality of the bond.

Series I: These bonds earn interest at a composite rate that can change semi-annually or annually.

Series EE and Series I savings bonds earn interest for almost 30 years. The interest is counted to the bond each month and compounds semi-annually.

Interest on a Savings Bond

Express, for example, you buy a Series EE savings bond for $100 that makes 0.10% interest per year. One month’s worth of interest is counted to the $100 principal amount each month.

After six months, the saving bond is worth $100.05. It earns interest on this principal amount (PA) for the next six months, after which the interest compounds again and onwards.

How To Buy Savings Bonds

To purchase this bond, you require a TreasuryDirect account, which also permits you to manage your bonds at your convenience. To find out precisely what your bonds are worth (or could be worth), There are many Savings Bond Calculators at TreasuryDirect, that you can check out there.

Types of Savings Bonds

Two types of these bonds are known: Series EE bonds, which are conventional savings bonds, and Series I bonds, which maintain an inflation-adjustment component.

Some discontinued saving bonds are still earning interest, including Series HH bonds and Patriot Bonds. Series HH bonds were public from 1980 through August 2004. They earn interest for up to 20 years on the Principal amount.

Patriot Bonds were dealt with from 2001 until 2011. This was a special kind of Series EE bond issued on paper. All paper savings bonds were suspended at the end of 2011.

Series EE U.S. Savings Bond

You buy Series EE savings bonds at face value, but the Treasury Department guarantees that the saving bonds will at least double in value after 20 years. These saving bonds continue to earn interest after that period, for up to 30 years total.

Here are more details about Series EE saving bonds:

Face value: Minimum of $25, known in penny increments

Maximum public for purchase: $10,000

Interest terms: 0.10% for saving bonds purchased between May 2020 and October 2022

Holding period: Up to 30 years; no penalty for cashing saving bonds after 5 years

Series I U.S. Savings Bond

Series I bonds are equivalent to Series EE bonds but are influenced by both a fixed rate and an inflation rate.

Face value: Minimum of $25, known in penny increments

Maximum public for purchase: $10,000

Interest terms: 1.06% for bonds purchased between May 2020 and October 2022

Holding period: Up to 30 years; no penalty for cashing saving bonds after 5 years

How To Cash in Savings Bonds

You can cash in these bonds at your local bank or through the U.S. Department of the Treasury. Here’s how to cash these saving bonds:

Paper Bonds

To cash a paper savings bond, give the bond and an acceptable form of identification to a bank. If you’re a beneficiary cashing the savings bond of a deceased individual, you will also require a certified death certificate.

Alternatively, you can finish FS Form 1522 and sign it at a bank for signature verification. Mail the FS form along with the unsigned savings bond to the U.S. Department of the Treasury.

Electronic Bonds

To cash these electronic savings bonds, log in to TreasuryDirect. Follow the onscreen steps for cashing any savings bond.

Are Savings Bonds a Good Investment?

A savings bond’s safety— the financial backing of the U.S. government — can be appealing to a cautious investor. These bonds do grow in value over time, and they remain famous as gifts. Actually so, they may not be the best option for all situations.

Here’s a brief look:


  • Low risk
  • Guaranteed returns on Principal amount
  • Protection against yearly inflation


  • Minimal returns
  • Slow growth
  • As with any investment, research your choices and select the one that best fits your financial goals.

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