Savings Bonds

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Savings Bonds

Occasionally, you may come across an old movie or poster that portrays a World War II bond drive or urges citizens to "Buy bonds!" The United States established savings bonds, known then as "war bonds," in 1941 to help pay for the huge expenses it would incur during World War II. Today, savings bonds still help keep the government wheels running smoothly.

Savings bonds defined

Savings bonds are a debt instrument of the US government, issued as savings certificates to individual investors in small amounts. Savings bond certificates bear face value denominations ranging from $25 to $10,000.

Advantages of savings bonds

Since they are backed by the full faith and credit of the federal government, savings bonds are among the safest investments you can find. The US government is unlikely to default; and even if you lose your savings bond certificate, the government will often replace it—especially if you can provide such information as the serial number, issuance date, and address and Social Security number of the owner.

Another major advantage of savings bonds is that they are an accessible investment for almost anyone, since you can buy savings bonds in amounts as low as $25.

Learn more about the risks of savings bonds.

Tax advantages

That’s not all. Savings bonds have at least two more advantages. They can provide a tax shelter—you don’t have to pay income tax on the earnings of Series EE and Series I bonds until you redeem them. And you don’t pay any state or local taxes on their earnings. In addition, savings bonds are easy to acquire from www.treasurydirect.gov.

Besides offering several tax advantages, savings bonds can provide a reasonable return and a steady investment vehicle for the long term—not to mention the safety and backing of a US government-issued security.

Series EE bonds

Series EE bonds are savings bonds that pay interest when they are redeemed. Investors once purchased them in paper form for less than their face values and let them build up to full face value at maturity; paper bonds are no longer offered. Electronic EE bonds are bought at face value, however, for as little as $25 and increasing in increments of one cent. The maximum face value possible per year is $10,000.

Series HH bonds

Series HH bonds are savings bonds that were sold at their face values in exchange for mature EE bonds. They pay semi-annual interest. The denominations range from $500 to $10,000. Maturities range from 10 to 20 years. While HH bonds are still extant, they are no longer being issued.

Series I bonds

Series I bonds, a relative newcomer, also are sold at their full face value, beginning with a minimum denomination of $25 and increasing in increments of one cent, up to $10,000. Like Series EE bonds, you receive the interest earned when you cash the bond. I bonds earn interest for 30 years.

Savings bonds can be purchased online at treasurydirect.gov.