Key takeaways

• U.S. savings bonds, issued by the Treasury and backed by the U.S. government, are a low-risk way to save money.

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

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

Savings bonds are a type of debt securities issued by the U.S. 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 distinguishes it from more typical bonds.

If you’re considering US savings bonds as part of a personal investment 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 lend directly to the government and get a return on their investment.

Bonds are sold at less than face value; for example, a $50 Series Energy Efficiency bond might cost $25. Interest accrues on bonds and your earnings are combinedThat is, interest is earned on interest.

U.S. savings bonds differ from traditional bonds in several key ways:

How do savings bonds work?

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

U.S. savings bonds can only be redeemed by the owner and cannot be resold. The bond may be redeemed directly with the government or, in the case of a paper bond, may be redeemed with the government or a financial institution.

U.S. savings bonds can be purchased directly from the U.S. government through the Treasury Department’s account. Treasury Direct website. Series EE and Series I bonds can be purchased in electronic form, while Series I paper bonds can only be purchased with your IRS tax return through December 31, 2024.

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

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

Different types of savings bonds

US savings bonds come in three series; only two of these are still exported:

Series E bonds

Series EE bonds

Series I bonds

Are savings bonds worth it?

How to convert savings bonds into cash

Both Series EE and Series I bonds can be converted into cash after one year. If you cash out either series in less than five years, you’ll lose your last three months of interest payments.

Both bond series earn interest for up to 30 years. The longer you hold the bond, the more interest it accrues, but interest stops accruing beyond the 30-year limit.

While paper bonds can be redeemed at most bank or credit union branches, electronic bonds can be redeemed for cash 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 transferred to your account. control or savings account within two business days from the date of payment.

A minimum of $25 is required to redeem the electronic bond. There is usually no limit on the exchange of paper bonds, but the bank that converts the bonds into cash may impose a restriction on how much you can convert into cash at a time.

Savings bonds and corporate bonds

While the government issues US savings bonds, corporate bonds It is sold by companies that want to raise funds to build their capital. The company offers fixed or variable interest rates paid at regular intervals until the maturity date of the bond.

Before investing in a corporate bond, you can examine the rating the bond receives 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 will be considered “junk bonds.”

Unlike savings bonds, you can sell corporate bonds to get the money before maturity, but you’ll lose some of their face value. With savings bonds, you cannot sell the bond to another investor. However, you can buy the bond back for its face value and interest one year after purchasing it.

Savings accounts and savings bonds

Both savings bonds and many savings accounts are backed by the U.S. government, but there are some differences between the two in terms of rate of return and accessibility of your funds.

You can use a savings account when you need to increase your savings but still need the ability to withdraw money at any time; whereas, you can use a savings bond to get guaranteed returns as part of your investment strategy.

In conclusion

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

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

– Freelance writer sarah george Contributed to updating this article. staff writer James Royal, Ph.D. Previous versions of this article were contributed to.