Safe and Affordable

Like any other U.S. Government security, Savings Bonds are backed by the full faith and credit of the U.S. Government. What makes them so popular for gift-givers and small investors is that they are available in smaller denominations than other government securities. Savings Bonds can be purchased in denominations as small as $25 each, and are also available in denominations of $50, $75, $100, $200, $500, $1,000, $5,000, and $10,000. The government allows each individual to purchase up to $15,000 in Savings Bonds each year.

U.S. Savings Bonds are safe and secure. Bonds can be replaced if lost, stolen, or destroyed, as long as it can be established that the bonds haven't been cashed, or, if cashed, have been paid in error to the wrong person.

A Market-based Investment

Savings Bonds are a market based investment which means that, unlike Treasuries which pay a fixed rate of interest, their interest rates will vary over time. As of May 1997, this rate is computed by taking 85% of the five-year Treasury note rate over the time you own the Savings Bonds. Prior to May 1995, the Savings bond Rate was computed by taking 90% of the five-year Treasury rate. Savings bonds purchased between 1995 and 1997 are computed from short term reference rate. For help in computing the current interest rate of your Savings Bonds, click here for a Savings Bond calculator.

Savings Bonds are a liquid long-term investment. Interest on bonds will continue to accrue for 30 years, but bonds can be cashed anytime after six months.

Tax Advantages

Interest earned on U.S. Savings Bonds is exempt from State and local income tax. You can also defer paying Federal income tax on the interest until you cash your bond or until it stops earning interest in 30 years. Also, Savings Bonds may provide further tax savings when used to finance higher education.

Easy to Buy

You can buy EE Bonds and I Bonds at your local bank, most financial institutions, and even through the Payroll Savings Plan where you work. The Bureau of Public Debt which issues Savings Bonds also offers a program called EasySaver which allows you to buy Savings Bonds with an automatic deduction from your bank account. Whichever option you choose, you will never have to pay any fees or commissions when you purchase Savings Bonds.

How Savings Bonds Work

Most Savings Bonds are bought at a discount, which means that, at the time of purchase, you pay only less than the bond's face value. For example, a $100 Savings Bond will cost you $50. Depending on the series of Savings Bond you own, you either receive your interest now or later.

When Bonds Mature

Original maturity is the maximum amount of time it takes for a Series E/EE Savings Bond to reach its face value. For any Series E/EE Savings Bond purchased between May 1995 and the present, the original term for the bond to reach maturity is 17 years.

However, your bond will continue to earn interest for a specified period even after it reaches original maturity. After its original maturity, a bond automatically enters one or more extension periods (usually ten years long). During extensions, bonds issued prior to May 1995 earn interest based on a guaranteed yield or a market-based yield. The applicable yield is the one in effect at the time the bond enters the extension. Bonds issued after April 1995 have no guaranteed minimum yield. They will earn interest in accordance with the terms and conditions in effect at the time they enter the extension.

At the end of their extension period(s), bonds are said to have reached final maturity. At this point, they stop earning interest and can either be redeemed or exchanged for Series HH current income bonds.

Series E/EE Bonds and H/HH Bonds

Series E/EE bonds and savings notes are accrual securities. As you hold these bonds, interest is periodically added to the amount you originally paid to establish their current redemption value. The longer you hold your bond, up to 30 years, the more valuable it becomes. When you cash your bond, you receive the return on your original investment plus the interest you earned while you held the bond.

Series H and HH bonds are current-income securities. These bonds pay you interest every six months and, when you cash them, you receive your original investment back.

Series I Bonds

Series I Bonds are structured differently than the more common Series E/EE and H/HH Bonds. They're sold at face value and grow with inflation-indexed earnings for up to 30 years. You can invest as little as $50 or as much as $30,000 per year. I Bonds will generally increase in value every month and interest on them is compounded semi-annually. They are liquid and can be turned into cash at any time after six months.

The I Bonds earnings rate is a combination of two separate rates: a fixed rate of return and a semiannual inflation rate. Each May and November, the Treasury announces a fixed rate of return that applies to all I Bonds issued during the six-month period beginning with the effective date of the announcement, May 1 or November 1. The fixed rate for any given I Bond remains the same for the life of the bond.

Also, every May and November, the Treasury announces a semiannual inflation rate based on changes in the Consumer Price Index. The semiannual inflation rate is then combined with the fixed rate of an I Bond to determine the bond's earnings for the next six months. The current earnings rate for I Bonds is 6.98%, which is 3.4% over inflation.

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