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Glossary

US Savings Bonds Definition and Meaning

U.S. Savings Bonds are government-backed debt securities designed to help Americans save money while funding federal spending. Think of them as a low-risk piggy bank that grows over time, ideal for long-term goals like education or retirement.

Backed by the “full faith and credit” of the U.S. government, these bonds offer stability unmatched by stocks or corporate bonds—perfect for risk-averse savers.

How They Work

When you buy a savings bond, you’re lending money to the U.S. government. In return, it promises to repay your initial investment (principal) plus interest over time. Here’s the breakdown:

  • Zero-Coupon Structure: Unlike traditional bonds that pay regular interest, savings bonds accrue interest that’s paid when you cash them in.
  • Tax Advantages: Interest is exempt from state/local taxes. Federal taxes can be deferred until redemption or maturity.
  • Non-Negotiable: You can’t sell them to others—only redeem through the Treasury.

Types of U.S. Savings Bonds

Two main types exist today, each with unique features:

Feature Series EE Series I
Interest Rate Fixed rate (e.g., 3.5% as of 2025) Fixed rate + inflation adjustment
Guarantee Doubles in value after 20 years Protects against inflation
Purchase Limit $10,000/year electronically $10,000 electronically + $5k via tax refund
Best For Long-term savings (e.g., 20+ years) Short-to-medium-term inflation hedging

Series EE Bonds:

  • Sold at face value (pay $50 for a $50 bond).
  • Guaranteed to double in 20 years, equivalent to a 3.5% annual return.
  • Earn interest for 30 years total.

Series I Bonds:

  • Combine a fixed rate with a semiannual inflation adjustment (based on CPI-U).
  • Example: If inflation rises 5%, the bond’s value increases accordingly.
  • Popular during high inflation periods for preserving purchasing power.

Key Benefits

  1. Safety: Near-zero risk of default (government-backed).
  2. Tax Flexibility: Defer federal taxes until redemption; tax-free if used for qualified education expenses.
  3. Inflation Protection: Series I bonds adjust with rising consumer prices.
  4. Accessibility: Buy in amounts as small as $25 via TreasuryDirect.gov.

Drawbacks

  • Low Returns: EE bonds average ~3.5% over 20 years—below stock market averages.
  • Liquidity Limits: Must hold for at least 1 year; redeeming before 5 years forfeits 3 months’ interest.
  • Purchase Caps: Max $10,000/year per bond type4.

How to Buy

  1. Create a TreasuryDirect Account:
    • Provide SSN, bank account, and email.
    • No paper bonds except via tax refunds11.
  2. Choose Bond Type: Select EE or I bonds.
  3. Set Amount: Invest between $25–$10,000 per bond series annually.

For gifts or minors: Bonds can be registered in another person’s name, making them popular graduation or birthday presents.

Cashing Out

  • Electronic Bonds: Redeem via TreasuryDirect; funds transfer to your bank in 1–2 days.
  • Paper Bonds:
    • Take to a bank (if they accept them) with ID.
    • Mail to the Treasury with FS Form 1522 for amounts over $1,0001.

When to Consider Them

  • Emergency Fund Backup: After the 1-year lockup, they’re liquid.
  • Education Savings: Tax-free interest if used for qualified expenses.
  • Retirement Diversification: Safe asset to balance riskier investments.

The Fine Print

  • Maturity: EE bonds stop earning interest after 30 years; I bonds after 30 years.
  • Inheritance: Bonds can be transferred to heirs but require documentation9.
  • Fraud Protection: Lost/stolen bonds can be reissued1.

U.S. Savings Bonds are a financial safety net—slow and steady, but reliable. While they won’t make you rich, they’re a cornerstone for risk-averse savers or those hedging against market volatility.

Whether you’re stashing cash for a child’s future or preserving wealth during inflationary times, they offer a unique mix of security and modest growth.

U.S. Savings Bonds are government-backed debt securities designed to help Americans save money while funding federal spending. Think of them as a low-risk piggy bank that grows over time, ideal for long-term goals like education or retirement.

Backed by the “full faith and credit” of the U.S. government, these bonds offer stability unmatched by stocks or corporate bonds—perfect for risk-averse savers.

How They Work

When you buy a savings bond, you’re lending money to the U.S. government. In return, it promises to repay your initial investment (principal) plus interest over time. Here’s the breakdown:

  • Zero-Coupon Structure: Unlike traditional bonds that pay regular interest, savings bonds accrue interest that’s paid when you cash them in.
  • Tax Advantages: Interest is exempt from state/local taxes. Federal taxes can be deferred until redemption or maturity.
  • Non-Negotiable: You can’t sell them to others—only redeem through the Treasury.

Types of U.S. Savings Bonds

Two main types exist today, each with unique features:

Feature Series EE Series I
Interest Rate Fixed rate (e.g., 3.5% as of 2025) Fixed rate + inflation adjustment
Guarantee Doubles in value after 20 years Protects against inflation
Purchase Limit $10,000/year electronically $10,000 electronically + $5k via tax refund
Best For Long-term savings (e.g., 20+ years) Short-to-medium-term inflation hedging

Series EE Bonds:

  • Sold at face value (pay $50 for a $50 bond).
  • Guaranteed to double in 20 years, equivalent to a 3.5% annual return.
  • Earn interest for 30 years total.

Series I Bonds:

  • Combine a fixed rate with a semiannual inflation adjustment (based on CPI-U).
  • Example: If inflation rises 5%, the bond’s value increases accordingly.
  • Popular during high inflation periods for preserving purchasing power.

Key Benefits

  1. Safety: Near-zero risk of default (government-backed).
  2. Tax Flexibility: Defer federal taxes until redemption; tax-free if used for qualified education expenses.
  3. Inflation Protection: Series I bonds adjust with rising consumer prices.
  4. Accessibility: Buy in amounts as small as $25 via TreasuryDirect.gov.

Drawbacks

  • Low Returns: EE bonds average ~3.5% over 20 years—below stock market averages.
  • Liquidity Limits: Must hold for at least 1 year; redeeming before 5 years forfeits 3 months’ interest.
  • Purchase Caps: Max $10,000/year per bond type4.

How to Buy

  1. Create a TreasuryDirect Account:
    • Provide SSN, bank account, and email.
    • No paper bonds except via tax refunds11.
  2. Choose Bond Type: Select EE or I bonds.
  3. Set Amount: Invest between $25–$10,000 per bond series annually.

For gifts or minors: Bonds can be registered in another person’s name, making them popular graduation or birthday presents.

Cashing Out

  • Electronic Bonds: Redeem via TreasuryDirect; funds transfer to your bank in 1–2 days.
  • Paper Bonds:
    • Take to a bank (if they accept them) with ID.
    • Mail to the Treasury with FS Form 1522 for amounts over $1,0001.

When to Consider Them

  • Emergency Fund Backup: After the 1-year lockup, they’re liquid.
  • Education Savings: Tax-free interest if used for qualified expenses.
  • Retirement Diversification: Safe asset to balance riskier investments.

The Fine Print

  • Maturity: EE bonds stop earning interest after 30 years; I bonds after 30 years.
  • Inheritance: Bonds can be transferred to heirs but require documentation9.
  • Fraud Protection: Lost/stolen bonds can be reissued1.

U.S. Savings Bonds are a financial safety net—slow and steady, but reliable. While they won’t make you rich, they’re a cornerstone for risk-averse savers or those hedging against market volatility.

Whether you’re stashing cash for a child’s future or preserving wealth during inflationary times, they offer a unique mix of security and modest growth.