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What Are Savings Bonds?

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What Are 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.

Things To Know

  • Savings bonds are among the safest investments you can find.
  • You can buy savings bonds in a wide variety of denominations.
  • You can buy savings bonds online.

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 (and increasing in face amount by the penny). As a result, savings bonds still make good gifts for children planning to attend a college or technical school.

Tax advantages

That’s not all. Savings bonds have at least two more advantages. They can provide a tax shelter—you don’t 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 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. One type of savings bond even offers an inflation-indexed return.