Savings bonds issued by the United States are among the safest investment options because they are guaranteed by the federal government and come with no risk. Although the interest rates on these bonds are not as high as those on the stock market, they do provide a less risky source of income. While they cannot be redeemed until at least 12 months after purchase, they provide a chance to save for upcoming expenses. Moreover, the longer you wait to cash the bond, the more income it will earn.
What is U.S. Savings Bonds ?
A U.S. savings bond is a type of government bond made available to the public to help pay for federal spending and guarantees investors a little return. They are considered a safe and low-risk investment option for individuals who are looking to save money for the long term.
Savings Bonds are a type of investment that is backed by the U.S. government. These bonds are offered at a discount with a zero coupon and an implied fixed interest rate for a predetermined amount of time. There are two main types of U.S. Savings Bonds, Series EE and Series I. Series EE bonds are issued at a discount to their face value and earn interest over a period of up to 30 years. Series I bonds, on the other hand, earn interest that is based on a combination of a fixed rate and an inflation rate.
U.S. Savings Bonds can be purchased online through the U.S. Treasury Department's website or through most financial institutions. They can also be purchased as a gift for someone else. Bonds are typically issued in denominations of $25, $50, $75, $100, $200, $500, $1,000, $5,000, and $10,000.
Key Facts of Savings Bonds
- American citizens can purchase U.S. savings bonds, a type of public debt, to help pay for federal expenditures..
- Savings bonds don't offer regular coupon interest; instead, they are sold at a discount and mature at their full face value.
- An investor must be a U.S. citizen, legal resident, or an employee of the U.S. government in order to buy or redeem a U.S. savings bond.
- Series EE savings bonds have a 20-year maturity period and are first sold at 50% of their face value. Bonds of the Series I are indexed for inflation.
How the U.S. Savings Bonds Works ?
When you purchase a U.S. Savings Bond, you are essentially lending money to the U.S. government. In exchange, the government pays you interest on the bond. The bond will continue to earn interest until it matures or is redeemed. The amount of interest you earn on a U.S. Savings Bond depends on the type of bond you have and when it was issued. Series EE Bonds earn a fixed rate of interest, while Series I Bonds earn a variable rate of interest that is based on a combination of a fixed rate and an inflation rate.
The interest on U.S. Savings Bonds is compounded semi-annually, which means that the interest you earn in one period is added to the principal balance of the bond, and then interest is calculated on the new, higher balance in the next period.
You can purchase U.S. Savings Bonds in denominations ranging from $25 to $10,000, and you can purchase them online through the Treasury Department's website or through most banks and financial institutions. Bonds can be held for up to 30 years and will continue to earn interest during that time.
When you're ready to redeem a U.S. Savings Bond, you can do so online or by mailing the bond to the Treasury Department. If you redeem the bond before it has matured, you may be subject to penalties or loss of interest. However, after the bond has been held for at least one year, you can redeem it without penalty. When you redeem the bond, you will receive the principal balance plus any interest that has accrued. The interest on U.S. Savings Bonds is subject to federal income tax, but not state or local taxes.
Who is Eligible to Buy U.S. Savings Bonds ?
U.S. Savings Bonds are available to U.S. citizens, resident aliens, U.S. government employee (regardless of citizenship status) and non-resident aliens who meet certain eligibility requirements. Specifically, individuals must :
- Have a Social Security Number or an Individual Taxpayer Identification Number (ITIN).
- Be at least 18 years of age.
- Have a valid United States address.
- Be a natural person (U.S. Savings Bonds cannot be purchased by corporations or other entities).
- In addition, there are some restrictions on the amount of U.S. Savings Bonds that an individual can purchase in a single calendar year. As of 2023, the maximum amount that an individual can purchase is $10,000 in electronic bonds and $5,000 in paper bonds.
It's also worth noting that U.S. Savings Bonds may have additional eligibility requirements depending on the specific program or offering. For example, some U.S. Savings Bonds are only available to military personnel or employees of certain government agencies.
Types of U.S. Savings Bonds
There are two types of US savings bonds, Series EE and Series I. Both types of U.S. Savings Bonds are sold in denominations ranging from $25 to $10,000. They can be purchased online through the Treasury Department's website, as well as through most banks and financial institutions.
1) Series EE Bonds :
Series EE Bonds are sold at a discount to their face value, and they earn a fixed rate of interest. The interest on Series EE Bonds is compounded semi-annually, and the bonds have a maturity period of 20 years. However, Series EE Bonds can be held for up to 30 years and will continue to earn interest during that time.
- Value will unquestionably double in 20 years.
- Earn interest at a fix rate.
- Rate as of now, 2.10% (For savings bonds issued November 1, 2022 to April 30, 2023)
- Keep them secure in your TreasuryDirect account (only electronic).
- Purchase for any sum between $25 and $10,000.
- The annual maximum purchase is $10,000.
- Able to pay out after a year. (But if you cash before 5 years, you lose 3 months of interest.)
2) Series I Bonds :
Series I Bonds earn interest that is based on a combination of a fixed rate and an inflation rate. The inflation rate is adjusted twice a year based on changes in the Consumer Price Index (CPI). The interest on Series I Bonds is also compounded semi-annually, and the bonds have a maturity period of 30 years. However, like Series EE Bonds, Series I Bonds can be held for up to 30 years and will continue to earn interest during that time.
- Safeguard against inflation. Earn interest that is both fixed and inflation-based. Twice a year, the rate is reset.
- Rate as of now, 6.89% (For savings bonds issued November 1, 2022 to April 30, 2023)
- These are mostly electronic; store them securely in your TreasuryDirect account; the minimum balance is $25.
- You have the option to purchase paper I bonds with all or a portion of your IRS tax refund (minimum purchase price: $50).
- Each calendar year, a maximum of $10,000 in electronic I bonds and $5,000 in paper I bonds may be purchased.
- Able to pay out after a year. (But, you forfeit 3 months of interest if you cash out before 5 years.)
Interest Rates of U.S. Savings Bonds
The interest rates on U.S. Savings Bonds vary depending on the type of bond and the time period for which it is held.
Series EE Bonds :
These bonds are sold at face value, meaning that you pay the full face value of the bond and then earn interest on it over time. The interest rate on Series EE Bonds is a fixed rate that is set at the time of purchase and remains the same for the life of the bond. As of March 2023, the interest rate for Series EE Bonds is 2.10%.
Series I Bonds :
These bonds are sold at face value, but they earn interest based on a combination of a fixed rate and an inflation rate. The fixed rate is set at the time of purchase and remains the same for the life of the bond, while the inflation rate is adjusted every six months based on changes in the Consumer Price Index. As of March 2023, the fixed rate for Series I Bonds is 6.89%.
How to Buy U.S. Savings Bonds ?
TreasuryDirect.gov is the one and only place to electronically buy and redeem U.S. Savings Bonds. You can purchase US savings bonds online through the TreasuryDirect website. You will need to create an account on the website and link it to your bank account to make purchases.
You will need to provide personal information such as your name, Social Security number, and mailing address, as well as the amount and type of savings bond you wish to purchase. It's important to note that savings bonds are intended to be long-term investments, and there are penalties for redeeming them before they mature.
U.S. Savings Bond Calculator
The U.S. Treasury Department provides an online Savings Bond Calculator on their website, which you can use to calculate the current value of your savings bonds. Here's how to use it :
- Go to the Savings Bond Calculator page on the TreasuryDirect website.
- Select the savings bonds calculator from the drop-down menus, then Go to Savings Bond Calculator.
- Enter the issue date of your savings bond in the "Series EE/E Bonds Issued On" or "Series I Bonds Issued On" field. You can find the issue date on the front of your savings bond.
- Enter the face value of your savings bond in the "Face Value" field.
- Click the "Calculate" button.
The Savings Bond Calculator will display the current value of your savings bond, including the interest earned and the next interest payment date. Note that the calculator provides an estimate and the actual value of your savings bond may be slightly different due to rounding or other factors.
Features of U.S. Savings Bonds
U.S. Savings Bonds have several features that make them an attractive investment option for individuals looking for a safe and low-risk way to save money :
1) Low risk :
U.S. Savings Bonds are backed by the full faith and credit of the U.S. government, which means they are considered to be very safe and low-risk investments.
3) Guaranteed rate of return :
U.S. Savings Bonds offer a guaranteed rate of return that is set at the time of purchase. This can be helpful for individuals who are looking for a predictable way to save money.
3) Tax benefits :
The interest earned on U.S. Savings Bonds is exempt from state and local income taxes, and federal income taxes can be deferred until the bond is redeemed or matures.
4) Liquidity :
U.S. Savings Bonds can be redeemed at any time after they have been held for at least one year, although there may be penalties for redeeming them before they have matured.
5) Easy to purchase :
U.S. Savings Bonds can be purchased online through the Treasury Department's website, or through most banks and financial institutions.
6) Options for gifting :
U.S. Savings Bonds can be purchased as a gift for someone else, which can be a thoughtful way to encourage savings.
Advantages of U.S. Savings Bonds
One of the main advantages of U.S. Savings Bonds is that they are backed by the full faith and credit of the U.S. government, which makes them a very safe investment option. They also offer a guaranteed rate of return, which can be helpful for individuals who are looking for a low-risk way to save money.
Disadvantages of U.S. Savings Bonds
Savings Bonds do have some disadvantages such as, they are subject to federal income tax, but not state or local taxes. Additionally, they may not offer as high a rate of return as other types of investments, such as stocks or mutual funds. Finally, they are subject to certain restrictions and limitations, such as limits on how much you can invest in them and when you can redeem them.
Frequently Asked Questions
Is it worth buying U.S. savings bonds?
Whether or not it is worth buying U.S. Treasury bonds depends on your individual financial situation and investment goals. Bonds continue to be a secure, simple way to accumulate savings over time. The Treasury promises to not only pay you back over the course of 20 years, but to also quadruple your initial investment.
Are US saving bonds risky?
The U.S. Department of the Treasury issues savings bonds as a form of debt instrument to assist in meeting the country's borrowing requirements. Because they are backed by the full faith and credit of the United States government, U.S. savings bonds are among the safest investments.
Can a non US citizen buy US Savings Bonds?
Your home country's rules and regulations may have an impact on your eligibility to purchase US government bonds, although in general, non-US nationals are permitted to do so. Either a Social Security or an Individual Taxpayer Identification Number are required.
How many US savings bonds can I buy?
The annual limit for purchasing electronic EE and I Savings Bonds is $10,000 per person. The purchase caps for electronic EE and I Savings Bonds are unaffected by purchases of any other Federal securities.
Are U.S. Savings Bonds taxable?
For tax reasons, the interest you get on your savings bonds typically constitutes a portion of your gross income.
Do US Savings Bonds double in value?
The U.S. government guarantees that EE bonds will at least double in value during their duration, which is typically 30 years (although certain issues of EE bonds can have different maturities).
What happens if you lose a U.S. savings bond?
Fill out a Claim for Lost, Stolen, or Destroyed United States Savings Bonds form if a savings bond is lost, stolen, or destroyed (FS Form 1048). In the presence of a certified certifying officer, kindly sign the form (available at a bank, trust company, or credit union).
Are savings bonds a good investment right now?
The composite rate for bonds issued between November 1, 2022, and April 30, 2023 is 6.89% for the first six months. Even if that is significantly lower than the peak of 9.62%, you might still earn a sizable amount of money. Over the next six months, investing $1,000 in an I bond would yield $34.45 in interest.
Do U.S. savings bonds have to be cashed at maturity?
Although there is a fee for cashing them in within the first five years, they can be cashed in after one year. A savings bond can be kept until it fully matures, which typically takes 30 years, if you don't want to do that. Paper bonds can still be cashed in, although these days you can only buy electronic bonds.