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US Savings Bonds – What Are Savings Bonds and How do They Work?

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When I was a child, my parents and Grandmother bought my siblings and I United States Savings Bonds for our college savings. It was a very generous gesture on their part and I redeemed my US Savings bonds when I went off to college, where they certainly came in useful.

When I was younger, I didn’t understand much about Savings Bonds, only that they were beautiful to look at and were worth a lot of money – or at least they would be worth a lot of money someday! And I think that just about sums up what most people know about US Savings Bonds – they look cool, and one day they will be worth a lot of money (since they are often purchased at less than face value). Hopefully this primer will give you a better understanding of US Savings Bonds – what they are, and how they work.

Albert Einstein Series I US Savings Bond

What Are US Savings Bonds?

United States Savings Bonds are a type of government debt which is issued by the U.S. Department of Treasury through the Bureau of the Public Debt. Essentially, when you buy a Savings Bond, you are loaning the US Treasury some of your hard earned money, with the promise they will repay it. US Savings Bonds are considered one of the most secure forms of bonds in the world.

The debt financing instruments of the United States Federal government include: Treasury Bills, Treasury Notes, Treasury Bonds, and Treasury Inflation Protected Securities, which are all often simply referred to as “treasuries.”

Types of US Savings Bonds

Savings bonds are unmarketable securities which are issued to subscribers and cannot be transferred through market sales. They were originally called Liberty Bonds and used to finance World War I.

There are a couple of different types of United States Savings Bonds available for purchase including: Treasury Bonds, I Savings Bonds and EE/E Savings Bonds.

  • Treasury Bonds have a 30 year term and pay a fixed rate of interest on a six-month basis until they mature. The owner of the bond is paid the face value of the bond when it is fully matured. US Treasury bonds may be held until maturity, or can be sold prior to the maturity date.  You can purchase treasury bonds from Treasury Direct.  The minimum purchase of a treasury bond is $100, maximum is $5 million.
  • I Savings Bonds are a low risk liquid savings bond that earns interest and protects you from inflation. You can purchase I Savings Bonds from Treasury Direct and at most local financial institutions. The minimum purchase of a paper bond certificate is $50 for a $50 I Bond, and $25 for a $25 I Bond when purchased electronically through Treasury Direct. The maximum purchase for I Savings Bonds in a calendar year is $5,000.
  • Series EE Bonds are safe, low risk bonds. They can be purchased from Treasury Direct or almost any other financial institution. Some employers also offer an option of directly purchasing savings bonds through your paycheck.  The current rate through October 31, 2010 is at 1.4% (fixed rate). The minimum purchase for a paper bond certificate is $25 for a $50 EE Bond. The maximum purchase in a calendar year is $5,000 in paper bonds in the purchase price.

US Savings Bonds as Investments or Gifts

Savings bonds may be a good investment if you have the time and patience to let the bonds fully mature. When purchased in advance, they would be great for planning for retirement, saving for education, and giving as gifts for children.

Savings bonds make a great gift for birthdays, weddings, graduations, and celebrating a birth. You can buy a bond for someone in either electronic or paper form. You must be 18 or older to purchase a bond electronically, but do not need to be 18 or older to receive a bond. To gift a bond, you need to know the recipient’s full name, social security number, and Treasury Direct account number (if purchasing electronically). If purchasing at a financial institution, then you will need to fill out their form and will receive the paper bond usually in about three weeks which can be mailed to your or directly to the recipient of the US Savings Bond.


Published or updated December 12, 2012.
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{ 10 comments… read them below or add one }

1 John

Great explanation of US Savings Bonds! I think that bonds must have been good gifts from parents & grandparents. My grandparents still buy my children EE Bonds each year for Christmas. My kids of course think they are cash and can go out and buy something!

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2 Ryan

They will certainly come in handy if you can convince them to hold on to them until they need a large amount of money. They were great when I reached college age!

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3 Kirk Kinder

Good synopsis of the savings bond market. I hope that they continue to be a solid vehicle for long term investment. I would probably recommend gifting a few shares of a quality company like Coke or JNJ. They have better yields and have a better chance of being around 30 years from now. This isn’t to say the US wont’ be around. It is just the likelihood of default is higher with our government than most well established companies.

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4 Ryan

Those companies also pay fairly strong dividends, don’t they? Plus you have the added opportunity for growth, which is nice. :)

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5 Jim Corbitt

Im a little confused about the maturity date of the series EE US bonds. Is it 30 yrs, like the Treasury Bonds??

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6 Robert Ravenscroft

Not so much a comment, but a question. I have about 25 years worth of bonds, I’m missing some and need to know how I can get a list of all bonds issued to me, so that I could cancel the bonds I’m missing and have the reissued.

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7 Ryan

Robert, you need to contact TreasuryDirect.gov for more information.

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8 sarah

i have a pretty nice stack of savings bonds and i am kind of confused. should i wait until the final maturity date to cash each of them in or will i get pentalized? is it best to cash them in as they mature so i dont get slapped with all the taxes at once?

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9 syed ahmad

A friend of mine in Malaysia have some us treasury bonds which were issued in year 1934 for a maturity period of 33 years @4% intrest per year as I understand they are expired , pl tell me that the bonds are still worth anything thanks

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10 Ryan Guina

I am not 100% certain, but I would think the bonds are still good, but they probably would have stopped accruing interest by now. Your friend would likely need to take them to a US Bank, or to a bank that will accept US Savings Bonds. Because they are so old, it may be more difficult to find a place to redeem them.

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