Savings Bond: How It Works, Types, & Definition

A savings bond represents the money that you loaned to the US government. In the same way that you pay interest on bank loans, the US government will pay you interest (for up to 30 years) when you own a savings bond.

Since you’re lending money to the government, savings bonds are considered to be one of the safest investments available.

There are currently two types of savings bonds that you can purchase from the U.S. Department of the Treasury:

• Series EE Savings Bonds
• Series I Savings Bonds

Which Savings Bond Should I Purchase?

Both types of savings bonds that are currently available are simple, safe, and affordable, in exchange for having lower-than-average interest rates.

Here are some of the key details of each type of savings bond so you can decide which one you’d like to purchase:

Series EE Savings Bonds

The main draw of this particular type of savings bond is that they are guaranteed to double in value in 20 years. Even if the interest rate isn’t high enough for this to happen, the US government will add money to your earnings to ensure that the value doubles after 20 years.

• New EE Bonds are electronic only and they currently have a fixed interest rate of 2.70% (valid until October 31, 2024). Interest is earned monthly and is compounded every 6 months.
• You can purchase EE bonds for any amount from $25 up to $10,000. The maximum purchase of $10,000 is renewed each calendar year.
• EE bonds stop earning interest after 30 years and you can cash in as early as 1 year. However, you’ll lose 3 months of interest if you cash in before 5 years have passed.

💡 Note: The last paper EE bonds were issued in 2012. Before May 2005, EE bonds could either have a fixed or variable rate.

Series I Savings Bonds

The interest rate of Series I Savings bonds is based on the inflation rate of the US. This makes this savings bond perfect for those who simply want to protect their savings from inflation.

• Series I Bonds currently have a variable interest rate of 4.28% which changes every 6 months, based on inflation.
• Series I Bonds are primarily electronic but paper I bonds can be purchased with your IRS tax refund. You can purchase Series I bonds for any amount from $25 up to $10,000.
• The maximum purchase for electronic I bonds is $10,000, while the maximum purchase for paper I bonds is $5,000. These maximum purchase limits are renewed each calendar year.
• Series I Bonds stop earning interest after 30 years and you can cash in as early as 1 year. However, you’ll lose 3 months of interest if you cash in before 5 years have passed.

💡 Bottom Line: If you’re willing to wait for at least 20 years before cashing in your bonds, Series EE bonds are perfect for you since they are assured to double in value in that time. If you simply want to protect your savings from inflation, then go for Series I Bonds.

Should You Purchase Savings Bonds from Other People?

No, you shouldn’t purchase savings bonds from a source other than TreasuryDirect: https://www.treasurydirect.gov/savings-bonds/buy-a-bond/

If you buy savings bonds from someone else, then you won’t be able to cash them.

You’ll need legal evidence to prove that you own the bond before you can cash it. And this is usually only granted to you in the case of inherited bonds.

How Can I Purchase Series EE or Series I Bonds?

You can purchase and keep track of your savings bonds with your TreasuryDirect Account.

You can sign up for a TreasuryDirect account on this page: https://www.treasurydirect.gov/RS/UN-AccountCreate.do

After signing up, log in to your TreasuryDirect Account and follow these steps:

1. Select BuyDirect
2. Select the Type of Bond you want to purchase
3. Choose the Type of Ownership for the bond:
   • One Owner
   • Owner and Beneficiary
   • Two Owners
4. Fill out the rest of the Required Information

💡 Note: If you’re planning on gifting savings bonds to someone, you’ll need their Full name, Social Security Number (or Taxpayer Identification Number), and TreasuryDirect account number.

How to Cash in Savings Bonds

You can cash electronic bonds from your TreasuryDirect Account, while you can cash your paper bonds at a bank of your choice or by mailing the filled out FS Form 1522 to:

Treasury Retail Securities Services,
P.O. Box 9150,
Minneapolis, MN 55480-9150

To cash your electronic bonds, follow these steps:

1. Log in to your TreasuryDirect Account 
2. Go to ManageDirect
3. Click on the Cashing Securities Link
4. Follow the rest of the prompts

💡 Note: If you’re cashing a paper bond that’s worth more than $1,000 by mail, then you’ll need to get your signature certified.