6 Min Read | Updated November 30, 2023
Originally Published: February 14, 2020
How Do Savings Bonds Work?
Learn what U.S. savings bonds are, why they’re considered a safe investment, and what your options are with this long-term investment.
At-A-Glance
Saving bonds are considered to be low-risk investments because they’re backed by the U.S. government.
There are different types of savings bonds, and the interest rates for each work in different ways. Understanding how they work can help you decide which bond, if any, is right for you.
Depending on the savings bond you choose, you could double your investment – as long as you hold it for at least 20 years.
If you’re like me, what you know about U.S. savings bonds is that they’re those weird paper certificates your grandparents used to give you on your birthday – if you’ve even heard of them. But here’s a surprise: As of 2023, certain bonds will earn an annual fixed rate of 2.50%, while others will earn a composite rate of 4.30% they could earn you slightly more than 3.5% a year in interest, if you hold them for the long term.1
This article outlines information to help you decide whether savings bonds are a good investment for you, including:
- The two kinds of savings bonds you can buy today.
- Where you can buy them.
- How you cash them in.
What Are Savings Bonds?
Savings bonds are a type of investment issued by the U.S. government, designed to help you save money while earning interest over time. When you purchase a savings bond, you’'re essentially lending money to the government, and in return, they promise to repay you the initial amount you invested (known as the face value) along with interest at a later date. Savings bonds are considered a secure and low-risk investment and can serve various purposes, such as long-term savings, education funding, or gifts.
What Are the Two Types of Savings Bonds?
There are two types of U.S. savings bonds available today, Series EE and Series I.
Series EE
With these bonds, the U.S. Treasury “guarantees” you will double your money if you hold a Series EE bond for 20 years.2 So, Treasury makes a one-time adjustment on the 20th anniversary of the day you bought the bond, to value it at double the original face value. Series EE bonds issued from November 2019 to April 2020 earn an interest rate of 0.1%, while Series EE bonds issued May 1, 2023 to October 31, 2023, earn an interest rate of 2.5%.
Series I
These bonds earn a variable interest rate tied to inflation, and there is no doubling promise. Instead, Series I bond interest rates include two components: a fixed rate for the life of the bond, plus a variable component that rises and falls depending on the inflation rate and is updated twice a year.3
Both bonds stop earning interest after 30 years.
Where Can You Buy Savings Bonds?
You can buy savings bonds only directly through the U.S. Treasury, almost exclusively online through TreasuryDirect.gov. The only exception is that you can buy a paper Series I bond with your tax refund, up to $5,000, by filing IRS Form 8888 with your tax return.4 Otherwise, you have to set up an online account at TreasuryDirect, tie it to your bank account, and buy Series EE or Series I bonds in electronic form.
Who Can Buy Savings Bonds?
Anyone can buy U.S. savings bonds, if they’re 18 or older, have a Social Security number, and are a U.S. citizen, U.S. resident, or an employee of the U.S. government. You can also give bonds as a gift, as long as you know the recipient’s Social Security number, but your recipient must also have an account at TreasuryDirect.
How Much Can You Buy in Savings Bonds?
You can purchase either bond in any amount, from $25 up to $10,000. In any one year, you can buy up to $10,000 in Series EE savings bonds and up to $10,000 in Series I electronic savings bonds for yourself, as the owner of the bonds. However, this is in addition to the amount you can spend on savings bonds as gifts or for a child.5
How Do You Cash in Savings Bonds?
Once they’re at least a year old, you can cash in your electronic bonds any time by logging into your TreasuryDirect account, checking their current value, and following the on-site redemption instructions.6 Funds can be transferred to your bank account in two business days. If you have paper bonds – including EE, I, and older Series E bonds which were discontinued in 1980 and no longer accrue interest – you can cash them in at any bank branch. Series HH paper bonds, which were discontinued in 2004 can only be cashed in by mailing them to the U.S. Treasury.7
So Then, Are Savings Bonds a Good Investment?
Only you can decide whether savings bonds are a good investment. Can you hold a bond for 20 years? Can you earn more interest by investing in other ways? Would it be worth the risk? That last consideration is key, since savings bonds are considered to be low risk when compared to other investments.
Alternatives to Savings Bonds
There are alternatives to savings bonds that are worth considering as well. If you have money that you’d like to invest, and are looking for a safe alternative to bonds, you may want to consider a high-yield savings account. Some of these accounts may offer interest rates that are similar to savings bonds. However, it’s important to note that interest will vary depending on the account. Interest rates for savings accounts fluctuate over time as well. However, savings accounts offer more liquidity than bonds and have no penalties for withdrawals, making them a good option if you’d like to earn interest on your money, but want to be able to access it easily.
If you’d like to learn more about how different types of savings accounts can be useful for saving money read: “Types of Savings Accounts.”
FAQs On How Savings Bonds Work
Can I lose money with savings bonds?
All investments carry a level of risk, however, savings bonds are considered to be very safe investments because they are backed by the U.S. government. However, if you cash them in before maturity you may incur a penalty.
What happens if I cash in a savings bond before maturity?
You can cash in an EE or I savings bond before it reaches maturity, as long as you’ve owned it for at least one year. However, holding onto the bond longer means you will earn more interest (for up to 30 years). However, if you cash in a bond within the first five years, you will forfeit the last three months of interest.8
How can I keep track of my savings bonds?
You can manage and track your savings bonds online through your TreasuryDirect.gov account. There you can view your bond holdings, check their current values, and even calculate their future worth.
The Takeaway
In general, U.S. savings bonds are a low-risk way to save for the future. When considering bonds, keep in mind the bond’s price, its interest rate, redemption options, and date to maturity; then compare those features to other investments on the market. This approach will help you to determine whether a bond is a good investment for you.
1 “Fiscal Service Announces New Savings Bonds Rates, Series I to Earn 4.30%, Series EE to Earn 2.50%,” TreasuryDirect.gov
2 “May 2005 and Later (EE Bond Rates and Terms),” TreasuryDirect.gov
3 “Series I Savings Bonds,” TreasuryDirect.gov
4 “Using Your Income Tax Refund to Buy Paper Savings Bonds,” TreasuryDirect.gov
5 “Buying savings bonds,” TreasuryDirect.gov
6,8 “Cashing EE or I Savings Bonds,” TreasuryDirect.gov
7 “Cashing HH Savings Bonds,” TreasuryDirect.gov
Tony Azzara is a business technology writer and researcher based in Queens, NY, whose work focuses primarily on financial services technology.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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