Key recommendations

• A US savings bond is a low-risk way to save money that is issued by the Treasury and backed by the US government.

• Savings bonds pay interest only when redeemed by the owner and earn interest for up to 30 years.

• Electronic bonds can be redeemed on the TreasuryDirect website, while paper bonds can be redeemed at most bank or credit union branches.

Savings bonds are a type of debt security issued by the US government. Unlike typical bonds that pay interest regularly, a savings bond is a zero-coupon bond, meaning it only pays interest when redeemed by the owner. The bond is also non-transferable, so it cannot be sold to someone else, which sets it apart from more typical bonds.

If you are considering US savings bonds as part of a personal business savings planthere are some important details to know about how bonds work.

What is a savings bond?

Savings bonds are an easy way for individuals to borrow money directly from the government and receive a return on their investment.

Bonds are sold for less than face value, for example a $50 Series EE bond may cost $25. Bonds accrue interest and your earnings are compoundedthat is, interest is earned on interest.

US savings bonds differ from traditional bonds in several key ways:

How Savings Bonds Work

Savings bonds work by paying interest, and compound interest earned. Although a savings bond accrues interest over time, it is not paid until the bond is redeemed.

US Savings Bonds are redeemable only by the owner and are not resold. The bond can be redeemed directly with the government or, in the case of a paper bond, with the government or a financial institution.

US savings bonds can be purchased directly from the US government at the Treasury Department TreasuryDirect website. Series EE and Series I bonds can be purchased electronically, while paper Series I bonds can only be purchased until December 31, 2024, with an IRS tax refund.

All electronic savings bonds can be purchased in any amount from $25 to $10,000, while paper bonds are limited to $50, $100, $200, $500 and $1,000. The maximum that can be purchased in paper bonds is $5,000 per year.

If a paper bond is lost, stolen, destroyed or otherwise mutilated, a replacement electronic bond may be requested.

Different types of savings bonds

US savings bonds come in three series, only two of which are still issued:

Series E bonds

Series EE bonds

Series I bonds

Are Savings Bonds Worth It?

How to Cash in Savings Bonds

Both Series EE and Series I bonds are callable once they reach one year. If you cash out any of the series earlier than five years, you will lose the last three months of interest payments.

Both series of bonds earn interest for up to 30 years. The longer you hold the bond, the more interest accrues, but it no longer accrues interest beyond the 30-year limit.

Paper bonds can be redeemed at most bank or credit union branches, while electronic bonds can be redeemed on the TreasuryDirect website by logging into your account. and following the instructions for redeeming the bond. The cash value of the bond will be credited to you control or savings account within two working days from the date of redemption.

A minimum of $25 is required to redeem an e-bond. There is usually no limit on how much paper bonds can be redeemed, but the bank that is redeeming the bonds may impose a restriction on the amount you can redeem at any one time.

Savings Bonds vs. corporate bonds

While the government issues US savings bonds, corporate bonds they are sold by companies looking to raise funds to build capital. The company offers fixed or variable interest paid at regular intervals until the bond’s maturity date.

Before investing in a corporate bond, you can review the bond’s rating from three rating agencies: Standard & Poor’s Global Ratings, Moody’s Investor Services, and Fitch Ratings. The highest quality bonds will have a Triple-A rating, while the lowest quality bonds are considered “junk bonds.”

Unlike savings bonds, you can sell corporate bonds to get the money earlier than maturity, but you’ll lose some of the face value. With savings bonds, you cannot sell the bonds to another investor. But you can redeem the bond for face value and interest as soon as one year after purchase.

Savings accounts vs. savings bonds

Both savings bonds and many savings accounts are backed by the US government, although there are some differences between the two when it comes to the rate of return and the accessibility of your funds.

You may use a savings account when you need to build savings but still need the ability to withdraw funds at almost any time, whereas you might use a savings bond to receive guaranteed returns as part of a investment strategies.

Conclusion

Savings bonds are among the safest types of investmentsas safe as any type of government-backed investment such as high yield online savings accounts. Some factors to consider before investing in a savings bond include the interest rate offered and when you will want access to the funds.

Another safe alternative to savings bonds and savings accounts is certificates of deposit. They sometimes earn higher rates and are typically offered by federally insured banks and credit unions.

– Freelance writer Sarah George contributed to updating this article. Staff writer James Royal, Ph.D. contributed to earlier versions of this article.