Smart Bond Investing—Types of Bonds

U.S. Savings Bonds

 

Savings bonds are also issued by the federal government and backed by the "full faith and credit" guarantee. But unlike Treasuries, savings bonds may be purchased for an investment as low as $25. Like Treasuries, the interest earned on your savings bonds is subject to federal income tax, but not state or local income taxes.

 

Savings bonds can be purchased from the U.S. Treasury, at banks and credit unions, and are often offered by employers through payroll deduction. But unlike most other Treasuries, savings bonds cannot be bought and sold in the secondary market. In fact, only the person or persons who have registered a savings bond can receive payment for it.

 

Say Goodbye to Paper Saving Bonds

 

As of January 1, 2012, paper savings bonds are no longer sold at financial institutions. Electronic savings bonds in Series EE and I will remain available through purchase in TreasuryDirect®, a secure, Web-based system operated by Public Debt.

 

For information about how to handle savings bonds left in the wake of a death, see TreasuryDirect's information on Death of a Savings Bond Holder.

 

Types of Savings Bonds

 

The two most common types of savings bonds are I Bonds and Series EE Savings Bonds. Both are accrual securities, meaning the interest you earn accrues monthly at a variable rate and the interest is compounded semiannually. You receive your interest income when you redeem the bonds.

 

The I Bond tracks inflation to prevent your earnings from being eroded by a rising cost of living. Series EE Savings Bonds issued after May 2005 earn a fixed rate of interest. Both types of bonds are exempt from all state and local income taxes.

 

For more information about I and EE bonds see TreasuryDirect’s I and EE Savings Bond Comparison.

 

Purchasing Savings Bonds

 

You can purchase savings bonds electronically through the TreasuryDirect Website. No physical certificate will exist. TreasuryDirect allows you to buy, track, change registration and redeem your bond—all electronically via a secure online account. A program called SmartExchangeSM allows TreasuryDirect account owners to convert their paper savings bonds to electronic securities in a special Conversion Linked Account in their online account.

 

Taking Savings Bonds at Face Value

Whether you buy savings bonds electronically or in paper form, most savings bonds are sold at face value in amounts from $25 to $30,000. This means that if you buy a $100 bond, it costs you $100, on which you earn interest.

 

Remember to Redeem!

Always check the savings bond's issue dates to find out if it is still earning interest. Depending upon the date that you purchased your securities, it may be time to redeem them.

 

 

 

Savings Bond Risk Report Card

  Green Checkmark No call or liquidity risk and virtually no credit and default risk.
  Green Checkmark Except for Series EE bonds issued before May 2005, all savings bonds are exposed to interest rate risk.
  Green Checkmark Inflation risk: I bonds are protected from inflation, but EE bonds are not.
  Green Checkmark Opportunity risk exists, particularly for I bonds, which are particularly susceptible during periods of low inflation and the rare instances of deflation.

 

 

I Bonds and EE Bonds Snapshot

  Issuer U.S. Treasury
  Minimum Investment $25
  Interest Payment Interest accrues monthly—paid when bond is redeemed
  How to Buy/Sell TreasuryDirect, Broker
  Bond Interest Rate I Bond interest rate is a combination of two separate rates—a fixed rate of return and a variable semiannual inflation rate. See TreasuryDirect I Bonds.

EE Bonds issued after May 2005 offer fixed rates determined when the bonds are issued. See TreasuryDirect EE Bonds.
  Price Information TreasuryDirect or through a broker
  Website for More Info TreasuryDirect

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