Savings bonds are low-risk investments backed by the U.S. government. They won’t make you rich overnight, but they provide a safe way to grow money steadily while protecting your principal.
Many people overlook them in favor of flashier investments, yet savings bonds can still play an important role in a balanced financial plan. Whether you’re saving for education, retirement, or simply want a guaranteed return, knowing how these bonds work can help you decide if they fit your goals.
What to Know About Savings Bonds
Savings bonds are low-risk investments issued by the U.S. government. When you buy one, you’re essentially lending money to the government, and in return, they agree to repay you with interest.
Today, most savings bonds are electronic, making them easy to purchase and manage through TreasuryDirect. You can start with as little as $25 and invest up to $10,000 per calendar year, depending on the type of bond. Savings bonds can be used for a range of purposes, including building long-term savings or covering qualified education expenses.
How Savings Bonds Work
A savings bond functions like a government-backed IOU. You buy it at face value, and over time it earns interest until it matures. The U.S. Treasury sets the rate when you buy the bond, and that rate stays in place for the life of the bond.
Each bond has a fixed term and a maturity date. Once it matures, you can redeem it for the original amount you paid plus the interest it accumulated. Depending on the type of bond, maturity can be as short as 20 years or as long as 30 years.
Types of U.S. Savings Bonds
Today, the U.S. Treasury offers two main kinds of savings bonds: Series I Bonds and Series EE Bonds. Paper bonds are largely phased out, with most purchases now happening online through TreasuryDirect.
Series I Bonds
Series I Bonds combine a fixed interest rate with an inflation adjustment. This means your money grows at a guaranteed base rate while also keeping pace with rising prices. The Treasury updates the inflation component twice a year—every May and November.
- Purchase price: Sold at face value starting at $25
- Interest rate: Fixed rate plus inflation adjustment, currently 3.98% (for bonds issued May 1, 2025 – Oct. 31, 2025, with a fixed rate of 1.10%)
- Term: Earns interest for up to 30 years
- Availability: Electronic through TreasuryDirect or as paper bonds if purchased with a federal tax refund
Because of their inflation protection, I Bonds are especially attractive when inflation is high.
Series EE Bonds
Series EE Bonds are the more traditional savings bond option. They earn a fixed interest rate and have a unique guarantee: the Treasury ensures they will double in value if held for 20 years, even if the interest earned hasn’t reached that point.
- Purchase price: Sold at face value starting at $25
- Interest rate: Fixed for the life of the bond, compounded semiannually
- Term: Earns interest for up to 30 years
- Guarantee: Value doubles in 20 years
- Availability: Only available electronically through TreasuryDirect
Unlike I Bonds, EE Bonds do not adjust for inflation, so their real return can be lower if inflation rises sharply.
Pros & Cons of Savings Bonds
Savings bonds are one of the safest investments available, but their trade-off is slower growth compared to other options. Here’s a breakdown of the main advantages and disadvantages.
Pros
- Government backing: Virtually no default risk since they’re backed by the U.S. Treasury.
- Affordable entry point: Start investing with as little as $25.
- Tax advantages: Exempt from state and local income taxes, with potential federal tax exclusion if used for qualified education expenses.
- Long-term growth: I Bonds protect against inflation, and EE Bonds are guaranteed to double in 20 years.
- Easy to buy and redeem: Available electronically through TreasuryDirect, with straightforward redemption options.
Cons
- Limited returns: Lower earning potential compared to stocks or mutual funds.
- Long holding period: Must be held for at least one year, and cashing out before five years forfeits three months of interest.
- Annual purchase limits: Capped at $10,000 per person per year electronically (plus $5,000 with a tax refund for I Bonds).
- Inflation risk for EE Bonds: Since they don’t adjust for inflation, their real value may erode in high-inflation periods.
How to Buy Savings Bonds Online
The easiest way to purchase savings bonds today is through TreasuryDirect.gov, the U.S. Treasury’s secure online platform. You’ll need to create an account and link it to a checking or savings account for payment and redemption.
- Minimum purchase: $25
- Maximum purchase: Up to $10,000 per calendar year, per person, for both Series I and Series EE bonds. With I Bonds, you can buy an additional $5,000 in paper form using your federal tax refund.
- Format: All new EE Bonds and most I Bonds are issued electronically, though the paper option is still available via tax refunds.
The process is fully digital, and once purchased, your bonds are stored in your TreasuryDirect account for safekeeping.
How to Redeem Savings Bonds
Redeeming savings bonds is straightforward, though the process differs based on whether you hold electronic or paper bonds.
- Electronic bonds: Cash them out directly in your TreasuryDirect account. Funds are deposited into your linked bank account within a few business days.
- Paper bonds: These can usually be redeemed at a bank or credit union where you have an account. For older series, such as HH Bonds, you must mail them to the Treasury with FS Form 1522.
Keep in mind that savings bonds must be held at least one year before they can be redeemed. If you cash them in before five years, you’ll lose the last three months of earned interest as a penalty. After five years, there are no penalties.
Savings Bonds vs. Alternatives
Savings bonds share similarities with other safe investments, but there are key differences worth noting:
- Savings accounts: Highly liquid and FDIC-insured, but interest rates are usually lower than bonds. Interest is subject to federal, state, and local taxes.
- Certificates of deposit (CDs): Offer fixed interest rates over set terms, with higher returns than standard savings accounts. However, they lack inflation protection and may charge early withdrawal penalties.
- Money market accounts: Provide easier access to funds than CDs and often come with debit card or check-writing features. They can pay competitive rates but aren’t guaranteed to beat inflation.
- Treasury bills and notes: Like savings bonds, these are U.S. government-backed securities. Treasury bills mature in one year or less, while notes range from two to ten years. They may be a better fit if you want shorter commitments than the 20–30 year terms of savings bonds.
- Savings bonds: Backed by the U.S. Treasury, exempt from state and local taxes, and I Bonds adjust for inflation. The trade-off is a longer holding period and annual purchase limits.
In short, savings accounts are best for short-term needs, CDs and money market accounts work well for medium-term savings, and savings bonds or other Treasuries are strong options for long-term goals.
Final Thoughts
Savings bonds aren’t flashy, but they serve an important role for anyone who values stability and guaranteed growth. Backed by the U.S. Treasury, they carry virtually no default risk and offer unique perks like tax advantages and, in the case of I Bonds, protection against inflation.
They may not deliver the high returns of stocks or real estate, but that’s not what they’re built for. Savings bonds work best as a safe anchor in your portfolio, a way to set aside money for education, retirement, or future expenses without worrying about market swings. If your goals include steady, long-term growth with peace of mind, savings bonds can be a smart addition to your financial plan.
Frequently Asked Questions
Can I lose money with savings bonds?
You won’t lose your initial investment in savings bonds because they are backed by the U.S. government. The main risk is that your returns may not keep pace with inflation if you choose Series EE Bonds.
Are savings bonds a good option in 2025?
It depends on your goals. I Bonds can be especially valuable when inflation is higher, since their rate adjusts twice a year. EE Bonds work best if you plan to hold them for 20 years, when the Treasury guarantees they will double in value.
What happens if I forget about a savings bond?
If a savings bond reaches maturity and you don’t redeem it, it will stop earning interest. The Treasury will still honor the bond, but you’ll miss out on potential earnings by leaving it unredeemed.
Can I use savings bonds for college expenses?
Yes. If you meet income and other IRS requirements, you can use Series I or EE Bonds to pay for qualified higher education costs and potentially exclude the interest from federal taxes.
Do savings bonds earn compound interest?
Yes. Savings bonds earn interest monthly, and that interest is added to the bond’s value twice a year. Over time, you earn interest on both your original purchase and the accumulated interest.
