What Are Savings Bonds?
Savings bonds are interest-bearing bonds that are issued by the federal government of the Unites States. Unlike bonds that are traded in the securities markets, savings bonds cannot be transferred once purchased, and are in this sense non-transferable. Many savings bonds are sold at less than their face value, leaving plenty of room for interest to accrue over a period of many years. Because they represent government obligations, savings bonds are considered to be one of the safest investments in the world, although their rate of return fluctuates periodically based on prevailing interest rates and inflation data. The original savings bonds were created by the U.S. government to finance American involvement in World War I. There are two types of savings bonds that are still available; the series EE and series I bonds. Series EE savings bonds pay a rate of interest that varies periodically, but is calculated as 90% of the average yield on five-year Treasury securities over the past six
U.S. Savings Bonds represent loans to the federal government to be repaid in full, with interest, at a specified future date known as the maturity date. Two series of savings bonds are currently issued: Series I and EE. Series I bonds are inflation-indexed bonds used for savings. This article focuses on Series EE bonds, and their predecessors, Series E savings bonds, which are typically purchased as gifts for children or to fund future college costs or for retirement income. Series EE bonds issued today in paper are sold at a 50% discount to face value (the amount paid at maturity). For example, a Series EE paper bond issued today with a face amount of $1,000 costs $500 and will be worth $1,000 in 17 years. Bonds held after the 17-year maturity date will continue to earn interest semiannually for another 13 years. Electronic bonds are issued at face value. New bonds purchased after April 30, 2005, receive a fixed rate of interest for the life of the bond based on the interest rate in e
There are two types of bonds. I Bonds are a low-risk, liquid savings product. While you own them they earn interest and protect you from inflation (you purchase at face value). Series EE savings bonds are safe, low-risk savings products that pay interest based on current market rates for up to 30 years (you purchase at half the face value).
Savings bonds are loans to the government for a predetermined period of time (generally seven years or longer). They were designed primarily to help fund the U.S. war effort in World War II and were originally called war bonds. After the war, the bond program was continued and retitled U.S. savings bonds. In essence, the U.S. savings bond program is a method by which the United States government, who usually lacks the amount of funds needed to meet existing obligations, can borrow from you, a resident in the United States, with a promise to repay the amount that was borrowed from you, with interest, after a certain number of years. U.S. savings bonds are the investments that make it possible for our government to run the huge budget deficits that make trade shortfalls an ever-present fact of American life. Since U.S. savings bonds are obligations of the U.S. government, in that they are loans made directly to the government, they are considered to be as secure as the U.S. government. O
Savings bonds are like Treasury securities for small investors. They come in denominations as small as $25. The interest and principal are absolutely safe, and you don t have to pay any transaction costs. You can buy Series EE bonds and Series I bonds, which offer some protection against inflation. (The Treasury stopped issuing Series HH bonds after August 2004, but it continues to pay interest on outstanding bonds and expects to do so in some cases until 2024.) Interest earned from savings bonds is exempt from state and local taxes. You must pay federal tax on the earnings, but you can choose to defer the tax until the bond matures. And if you use the bond proceeds for qualified educational expenses, they may be tax exempt. For more on savings bonds, check the Treasury Department s TreasuryDirect — Individuals page.
