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What Is a Savings Bond?

Malcolm Tatum
Updated May 16, 2024
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The savings bond is a form of Treasury bond issued by the United States government. There are several types of bonds currently in circulation, with the Series EE bonds being the usual bond type extended to an individual investor. Series I bonds are also available, while another form of the savings bond, the Series HH bonds, are no longer issued. All types of savings bonds realize a return on the investment assuming they are held until maturity.

Bonds issued by the US government first came into being in the days of World War I. With no means of obtaining financing from other countries, the government turned to the citizenry and offered them a chance to purchase what were known as Liberty bonds. As the bonds began to mature after the war, refinancing the debt associated with the bonds became was necessary.

Over time, the savings bond emerged as a very safe way to conservatively create a nest egg for retirement. Generally, the Series EE bond is what people think of when purchasing the bonds. These bonds are issued for half of the face value and will mature over a long period of time. To obtain the best return, it is advisable to hold onto the bond for the full thirty years of the maturation period. Since May 2005, new Series EE bond issues pay a fixed interest rate, while any EE bonds issued prior to that date accrue interest using a different formula.

Along with the Series E type of bonds, there is also the Series I. These savings bonds are issued at the full face value and offer a variable rate of interest that is tied directly to the current level of inflation. In fact, this rate has two components present. There is a base rate that is fixed for the entire life of the bond. The second component is a variable interest rate that is reviewed semiannually. While the Treasury Department establishes the fixed rate component, the adjustment of the variable rate is calculated using the Consumer Price Index.

The United States government imposes an annual limit on the purchase of savings notes. As of 2008, that limit is set at $5,000 in US Dollars, although it is possible to purchase both electronic bonds and double that figure. A paper savings bond can be purchased at a local bank or credit union. Electronic bonds can be purchased online at a secure site established by the US Treasury Department. The government also provides an online savings bond calculator that individuals may use to review the current value of their bonds.

There are benefits and liabilities associated with purchasing a savings bond. This type of investment carries almost no risk, thus ensuring the holder of the bond is sure to realize a return over time. However, the savings bond interest will be extremely small in comparison to other investment options. In addition, it is usually necessary to hold the bond for at least a five-year period after purchase, in order to avoid incurring any interest penalties.

While a savings bond will increase in value over the years, the growth is not subject to taxes until the bond is redeemed or until the bond reaches full maturity after thirty years. For people who prefer to pay taxes on the income earned later rather than now, purchasing a savings bond each year is a good option. However, there is always the chance that enough of the bonds will mature or be redeemed in the same calendar year, which could result in enough interest income to move the individual into the next highest tax bracket.

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Malcolm Tatum
By Malcolm Tatum , Writer
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.

Discussion Comments

By anon344671 — On Aug 11, 2013

I don't understand the whole concept. I have a savings bond from the time of my birth in 1994 for 200.00. So my uncle paid 100.00 for it and currently its only worth like 121.00. So I wait 30 years to get 200.00?

By Adk109 — On Feb 15, 2012

Savings bonds are best option to save money without any risk. Savings bonds are guaranteed by the government of the United States so there is no fear of losing money. I think 'EE Savings Bonds' are more popular than 'HH Savings Bonds' and 'I Saving Bonds', because interest rate is depends on current market values which can be en-cashed after completion of six months.

By GreenWeaver — On Sep 11, 2010

SauteePan- I think buying EE bonds is a great idea. It is one of the few investments that have a guaranteed amount that you will be offered at redemption.

Sometimes you will have to wait a long time for the payoff, but with the uncertainty of the market, I personally feel better about it.

My mother-in-law buys savings bonds like these with a payroll deduction at work. The minimum amount to purchases these bonds is $25 per bond. This is probably the most common way people purchase a EE savings bond.

By SauteePan — On Sep 11, 2010

Comfyshoes-I also heard that I bonds are good too. These bonds are called I bonds because the I stands for inflation.

The yield for these bonds is adjusted for inflation, so you are always guaranteed to earn something.

There is usually in inverse relationship with bond prices and interest rates. When interest rates are low, as they are now, bond prices such as the I bond tend to cost more. The reason is that since interest rates are low, you will tend to get a much higher return because the savings bond redemption date is far out into the future and interest rates are likely to rise.

By taking a higher rate now, you will probably pay more for the bond.

By comfyshoes — On Sep 11, 2010

EE savings bonds are really popular. They offer double the face value of the savings bond on the maturity date and a lot of people buy these bonds in order to finance future purchases like a college education for their children.

There is a limit as to how many you can buy. Usually, the limit is set to $10,000 per year. So if you were to have $10,000 in these bonds, at maturity which is usually a minimum of about ten years, you would actually have $20,000.

Many banks offer savings bonds and they are usually tax free also. There is a savings bond calculator that offers information on the value of certain bonds previously issued if you choose to buy other bonds.

One of the best sites is Treasury Direct. It provides saving bond values and tells you what each savings bond is worth.

Malcolm Tatum

Malcolm Tatum


Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
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