Key takeout
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US savings bonds are zero coupon bonds issued by the Treasury Department and supported by the US government, making them one of the safest investment options available.
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Series EE bonds currently earn 2.70% per year, while Series I bonds earn 3.98% and offer inflation protection at an adjustable rate.
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Savings bonds must be held at least one year before redemption and will lose interest in the past three months if they are cashed out within five years.
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Unlike traditional bonds, savings bonds cannot be sold to other investors, but cannot be redeemed directly with the government.
Savings bonds are a type of debt security issued by the US government. Unlike typical bonds that pay interest periodically, savings bonds are zero coupon bonds, meaning that interest is paid only when redeemed by the owner. Bonds cannot be transferred either, so they cannot be sold to anyone else. This distinguishes it from more typical bonds.
If you are considering US savings bonds as part of your personal savings plan, there are some important details on how the bonds will work and whether they meet your financial goals compared to alternatives like high-yield savings accounts.
What is a savings bond?
Savings bonds are an easy way for individuals to lend money directly to the government and receive the benefits of their investment.
Bonds are sold at less than face value. For example, a $50 Series EE bond could cost $25. Bonds earn interest and your profits get worse. In other words, interest is earned in interest.
US savings bonds differ from traditional bonds in several important ways.
- Government support: US savings bonds are a low-risk way to save money issued by the Treasury Department and supported by the US government.
- Interest payment structure: Savings bonds pay interest only when redeemed by the owner and earn interest for 30 years.
- Redemption Process: Electronic bonds can be redeemed on the Ministry of Finance’s website, but paper bonds can be redeemed at most banks or credit union branches.
| Traditional bonds | Savings Bonds |
|---|---|
| Pay cash interest periodically | If you redeem it, you will pay the favorable interest |
| Mature on a specific date | You can redeem it anytime one year after the issue date |
| The owner pays tax on interest payments | Owners can choose to report interest when taxes are received or annually |
| Usually subject to local, state and federal taxes | Only subject to federal tax |
| Buyers can purchase bonds at any time at any price | Buyers are limited to $10,000 for each bond series (total of $20,000). |
How do savings bonds work?
Savings bonds work by paying interest and are interest-earning compounds. Savings bonds will generate interest over time, but will not be paid until the bond is redeemed.
US savings bonds may only be redeemed by the owner and are not resellable. Bonds can be redeemed directly with the government or financial institutions in the case of paper bonds.
US savings bonds can be purchased directly from the US government on the Treasury Department’s Treasury Department’s website. Series EE and Series I bonds are available for purchase in electronic format.
All e-saving bonds can be purchased for $25 to $10,000 in any amount, while paper bonds are limited to $50, $100, $200, $500, or $1,000. The maximum amount you can buy with paper bonds is $5,000 a year.
If a paper bond is lost, stolen, destroyed or otherwise cut, you can request an exchange e-bond.
Different types of savings bonds
US savings bonds are offered in three series, only two of which have been issued.
- Series E Bond
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The US government issued Series E bonds during World War II, funding itself during World War II, and continued selling until 1980, when Series EE bonds were replaced. Series E Bonds are no longer published.
- Series EE bond
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Series EE bonds were first issued in 1980 and are still issued today. These bonds may pay variable interest rates if issued between May 1997 and April 2005, or fixed interest rates if issued in May 2005.
Series EE bonds issued from May 1, 2025 to October 31, 2025 earn a 2.70% annual percentage.
- Series I Bond
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Series I bonds offer a greater level of protection against inflation than Series EE bonds. They have a combination of guaranteed fixed interest rates and variable inflation rates set twice a year, based on the consumer price index.
Series I bonds issued between May 1, 2025 and October 31, 2025 will pay a 3.98% yield. This varies with inflation rate.
Is savings bonds worth it?
advantage
- Safety: US savings bonds are issued directly by the Treasury Department and supported by the US government.
- tax: Only federal income tax applies to savings bonds, not state or local taxes (unless there is a state or inheritance tax).
- education: In some circumstances, you may avoid paying taxes on bond interest if the bond is used to pay for higher education. More details can be found on the Ministry of Finance’s website.
- I Bond Inflation Protection: Series I bonds provide some protection against inflation as prices are adjusted in response to changes in the consumer price index.
- EE bonds are guaranteed to double their value. The Ministry of Finance guarantees that e-EE bonds issued since June 2003 can be redeemed at least twice as par in 20 years. For more information, please visit the TreasuryDirect website.
Cons
- yield: US savings bonds may have lower yields than other savings products. Series EE bonds issued between November and April 2025 earn a 2.60% percentage, while Series I bonds issued during the same period pay a 3.11% yield.
- Flexibility: Savings bonds are not very flexible. They are locked up for at least one year and if redeemed within five years, they will be subject to an interest penalty for the past three months.
- Purchase restrictions: Individuals are limited to the amount they can invest in savings bonds. Each series costs $10,000 a year, and Paper Series I bonds cost $5,000 a year.
How to cash out your savings bonds
Both Series EE and Series I bonds can be cashed at age 1. Cashing in either series over 5 years earlier will result in loss of interest payments over the past three months.
Both sets of bonds have earned interest for 30 years. The longer you hold your bond, the more interest you will develop, but it will stop you from earning interest beyond the 30-year limit.
Electronic bonds
Electronic bonds can be cashed on the TreasuryDirect website by signing your account and following instructions to redeem the bond. The cash value of the bond will be deposited into your checking or savings account within two business days of the redemption date.
You need a minimum of $25 to exchange your e-bonds.
Paper bonding
Paper bonds can be redeemed at most banks or credit union branches. While there are usually no restrictions for cashing out paper bonds, banks that cash out bonds may impose limits on how much they can redeem at once.
Savings and corporate debt
The government issues US savings bonds, but corporate bonds are sold by companies seeking to raise money to build capital. The company offers fixed or variable interest rates paid periodically up to the maturity of the bond.
Before investing in corporate bonds, you can check your bond ratings from three rating agencies: Standard & Poor’s Global Ratings, Moody’s Investor Services, and Fitch Ratings. The highest quality bonds have a triple-A rating, while the lowest quality bonds are considered “junk bonds.”
Unlike savings bonds, you can sell corporate bonds and receive money earlier than maturity, but you lose some of the face value. With savings bonds, you cannot sell bonds to another investor. However, you can redeem the bond for its face value and interest immediately after a year of purchase.
| Savings Bonds | Corporate debt | |
| interest | The yields are typically lower than corporate bonds, such as 3% to 4%. | Interests vary widely based on what the company offers. Yields range from 4% to 6%. |
| Accessibility | You can cash into savings bonds a year after purchasing the bond. If redemption within the first five years, your interest will be confiscated. | To get the full face value of a bond, you will need to wait until maturity. You can sell bonds before maturity, but you will lose some of their face value. |
| Safety | Supported by the US government | It is issued by the company and sometimes supported by the company’s collateral. Corporate bonds are more risky than US-backed savings bonds. |
Savings accounts and savings debt
Both savings bonds and many savings accounts are supported by the US government, but there are some differences between the two when it comes to return rates and accessibility of funds.
| Savings account | Savings Bonds | |
|---|---|---|
| interest | Today, many high-yield savings accounts earn higher interest than savings bonds. | Series EE bonds currently earn less interest than many savings accounts, while Series I bonds earn more yields along a competitive savings account. |
| Accessibility | Money can usually be withdrawn up to six times a month without penalty. Some banks do not limit the number of times they can withdraw, resulting in maximum accessibility. | The bonds could not be cashed for at least a year, and a penalty was incurred for redemption of one five years ago. |
| Safety | Supported by the US government | Supported by the US government |
You may use a high-yield savings account if you need to build savings, but in most cases you will need the ability to withdraw funds, but you may use a savings bond to receive guaranteed returns as part of your investment strategy.
Conclusion
Savings bonds are one of the safe types of investments, as well as government-supported types of investments, such as online high-yield savings accounts. Some factors to consider before investing in savings bonds include when you need access to the interest rates offered and funds.
Another safe alternative to savings bonds and savings accounts is a certificate of deposit. These sometimes earn higher fees and are generally provided by federal insured banks and credit unions. Check out the best CD rates from Bankrate, compare your current products and find the right terminology that suits your needs.