Everything You Need to Know about United States Savings Bonds

Grandfather and grandson saving moneyApproximately 55 million people in the United States own a United States savings bond, according to the Bureau of the Fiscal Service of the Department of the Treasury. Savings bonds can be considered an investment in the future, and can be used toward any future expense such as school tuition, or a child’s first car or first home.

What exactly is a savings bond?

As defined by the United States Securities and Exchange Commission (SEC), savings bonds are deemed a “debt security” by the U.S. Department of the Treasury and are issued to individuals to help pay for the U.S. government’s borrowing needs. Essentially, when you buy a savings bond, you are providing money for the government to use. In exchange for using your money, the government repays you with interest. The amount of “interest” depends on the type of savings bond you purchase.

Savings bonds are considered a very safe form of investment since they are backed by the “full faith and credit of the U.S. government,” according to the U.S. Department of the Treasury.

How do savings bonds work?

It depends on the type of savings bond. Here’s how the SEC describes the two types of U.S. savings bonds currently available:

Series EE Bonds

Series EE bonds are sold at face value, between $50 and $10,000. A person is not allowed to purchase more than $10,000 (face value) in EE bonds in any calendar year. A Series EE bond pays interest for up to 30 years, and increases in value as the interest accrues. EE savings bonds must be held for at least a year. If you cash in your bond before 5 years you will forfeit the 3 most recent months interest. After 5 years there is no penalty you are paid your original investment amount plus all of the accumulated interest.

Series I Bonds

Series I bonds, are also sold at face value. They grow with inflation-indexed earnings for up to 30 years. These types of bonds are available in $50 to $10,000 denominations and, like Series EE bonds, have a purchase limit of $10,000 per person in each calendar year. The difference between Series EE and Series I is the rate of interest you receive. For more information visit www.treasurydirect.gov.

How do you purchase a savings bond?

Savings bonds can only be purchased online at www.treasurydirect.gov – a secure web based system operated by the U.S. Department of the Treasury. As of January 1, 2012, paper savings bonds are no longer sold at financial institutions. (Note: If you currently own paper savings bonds, you can still cash them at many financial institutions.)

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