Savings bonds are loans you make to the U.S. government that pay you back with interest

A savings bond is a piece of debt issued by the U.S. Treasury. When you buy one, you are lending money to the federal government. In return, the government promises to pay you back the amount you lent, plus interest, after a set period of time. You cannot cash it in before that time without losing some of the interest you earned.

Savings bonds are different from stocks or mutual funds because the government guarantees your money back — there is no market risk. They are also different from a regular savings account because the interest rate is set when you buy the bond, and you cannot touch the money without a penalty for a certain number of years.

The U.S. Treasury sells savings bonds directly to individuals. You buy them through TreasuryDirect, which is the official government website. You cannot buy them through a bank or a broker.

Key Takeaways

  • Savings bonds are issued by the U.S. Treasury and may provide your principal back plus interest, with no market risk.
  • You buy savings bonds through TreasuryDirect.gov, the official government website, not through a bank or investment firm.
  • The two main types are Series EE bonds (sold at half face value and double in 20 years) and Series I bonds (adjust for inflation every six months).
  • You must hold a savings bond for at least one year before cashing it, and you lose the last three months of interest if you cash it before five years.
  • Savings bonds earn interest for up to 30 years, but you can hold them longer without earning additional interest.

Series EE bonds and Series I bonds are the two types you can buy today

Series EE bonds are the traditional type. You buy them at half their face value — so you pay $50 for a $100 bond. The bond earns a fixed interest rate set by the Treasury every six months. After 20 years, the bond is may provide to be worth at least double what you paid for it. If the interest earned does not reach that doubling point on its own, the Treasury adds the difference.

Series I bonds are designed to protect you from inflation. The interest rate has two parts: a fixed rate (set when you buy) plus a variable rate that changes every six months based on inflation. The combined rate is announced by the Treasury in May and November. Series I bonds are sold at face value — you pay $50 for a $50 bond.

Series I bonds are often more attractive when inflation is high because the variable portion rises with it. Series EE bonds are simpler and work better when you want to know exactly what your money will be worth at maturity. Both types earn interest for 30 years, though you can hold them longer without earning additional interest.

You must wait at least one year to cash in a bond, and five years to avoid a penalty

Savings bonds are not meant to be liquid money. You cannot cash one in during the first year you own it — that is a hard rule. If you try, the Treasury will refuse.

If you cash in a bond between one and five years of ownership, you lose the last three months of interest. So if you bought a bond and cashed it in after two years, you would get your principal plus interest earned, minus three months' worth of that interest. After five years, you can cash it in without any penalty.

This penalty structure is why savings bonds work best for money you know you will not need for at least five years. If you think you might need the cash sooner, a high-yield savings account or money market account is a better choice.

Interest rates are set by the Treasury and announced twice a year

For Series EE bonds, the Treasury sets a fixed interest rate every six months. That rate applies to all EE bonds purchased during that six-month period. Once you buy your bond, your rate stays the same for the life of the bond.

For Series I bonds, the Treasury announces a combined rate (fixed plus inflation component) every May 1st and November 1st. The fixed portion stays the same for the life of your bond, but the inflation portion changes every six months based on the Consumer Price Index.

You can check current rates on TreasuryDirect.gov before you buy. The rates vary depending on market conditions and inflation, so there is no single "best" rate to wait for — but you can compare what is being offered now to what you might expect in the future based on economic trends.

You buy savings bonds through TreasuryDirect, the official government website

You cannot buy savings bonds from a bank or a brokerage firm. The only place to purchase them is TreasuryDirect.gov, which is run by the U.S. Department of the Treasury.

To buy a bond, you create an account on TreasuryDirect with your Social Security number, email address, and banking information. You link a bank account, and the Treasury withdraws the purchase price from that account. The bond is held electronically in your TreasuryDirect account — there is no physical certificate.

You can buy as little as $25 per bond (for Series I bonds) or $25 per bond (for Series EE bonds). There is an annual purchase limit of $10,000 per person per calendar year for each series. If you want to buy more, you can purchase up to an additional $5,000 in Series EE bonds using your tax refund, but that requires a different process through your tax return.

You can cash in a bond through TreasuryDirect or at a bank

Once your bond is old enough (at least one year), you can redeem it through your TreasuryDirect account. You log in, select the bond, and request the redemption. The Treasury deposits the cash into your linked bank account within a few business days.

You can also cash in a savings bond at most banks, though not all branches handle this. Call ahead to confirm. You will need to bring the bond information (if you have a physical certificate) or your TreasuryDirect login details. The bank will verify your identity and process the redemption.

When you redeem a bond, the Treasury sends you a 1099-INT form for tax purposes, because the interest you earned is taxable income. You report this on your federal tax return in the year you cash the bond.

Savings bonds are backed by the U.S. government and have no default risk

Because savings bonds are issued by the U.S. Treasury, they carry the full faith and credit of the federal government. This means there is essentially no risk that you will not get your money back. The government has never defaulted on its debt obligations.

This makes savings bonds one of the safest places to put money, but it also means the interest rates are lower than you might earn from riskier investments like stocks or corporate bonds. You are trading potential for higher returns in exchange for certainty.

Savings bonds are also protected from creditors in some situations. If you declare bankruptcy, certain savings bonds held in your name may be exempt from being seized to pay debts, though the rules vary by state and situation. Consult a bankruptcy attorney if this is a concern.

Frequently Asked Questions

Can I buy savings bonds for someone else as a gift?

Yes. You can purchase a Series EE or Series I bond and register it in someone else's name. You will need their Social Security number. Once registered, only that person can redeem the bond. This is a common way to give money to children or grandchildren with the intention that it grows over time.

What happens if I cash in a Series EE bond before it doubles in 20 years?

You get whatever the bond is worth at that time, minus the three-month interest penalty if you cash it in before five years. The doubling may provide only applies if you hold it for the full 20 years. If you cash it in at year 15 and it has not doubled yet, you receive the interest earned to date, not a may provide doubled amount.

Do I have to pay taxes on savings bond interest every year?

No. You can defer federal taxes on savings bond interest until you redeem the bond or it reaches final maturity at 30 years. Some people use this feature to time when they report the income. However, state and local taxes may explore differently depending on where you live.

What is the difference between a savings bond and a Treasury bill or Treasury note?

Savings bonds are sold directly to individuals and cannot be traded. Treasury bills, notes, and bonds are sold at auction and can be bought and sold on the secondary market. Treasury bills mature in one year or less, notes in two to ten years, and bonds in 20 to 30 years. Savings bonds are simpler for individual savers but offer less flexibility.

Can I lose money on a savings bond?

You cannot lose your principal — the government guarantees to pay back what you invested. However, if you cash in before five years, you lose three months of interest, which reduces your return. If inflation rises significantly, a Series EE bond with a fixed rate may not keep pace with rising prices, though a Series I bond will adjust.