U.S. Savings Bonds

What Are U.S. Savings Bonds?

A U.S. savings bond is a government bond offered to its citizens to help fund federal spending, and which provides savers with a guaranteed, although modest, return. These bonds are issued with zero coupon at a discount with an implied fixed rate of interest over a fixed period of time.

For instance, Series EE savings bonds are sold at 50% of their face value, and mature to their full value after 20 years.

Understanding U.S. Savings Bonds

A U.S. savings bond is a common type of government bond, which is a bond issued by a governmental body to raise funds from the public to fund its capital projects and other operations necessary to manage the economy. When the government sells bonds, it is in effect taking a loan from the public, which it promises to pay back at some predetermined date in the future. As compensation for providing it with capital, the government makes interest payments to its bondholders. 

Many people find these bonds attractive because they are not subject to state or local income taxes. These bonds cannot easily be transferred and are non-negotiable.

History of the U.S. Savings Bond

In 1935, during the Great Depression, President Franklin D. Roosevelt signed legislation that allowed the U.S. Department of the Treasury to issue federally backed savings bonds, Series A. In 1941, the Series E bond was first issued to help finance World War II and were called Defensive Bonds. After the attack on Pearl Harbor, they were called War Savings Bonds, and the money invested in them went directly toward the war effort.

After the war ended, Americans were encouraged to purchase savings bonds, which provided a way for individuals and families to earn returns on their investments while enjoying the absolute guarantee of the United States government. 

Features of U.S. Savings Bonds

Types of U.S. Savings Bonds

There are presently two types of U.S. savings bonds that can be purchased electronically are the Series EE and Series I bonds.

Other Considerations

In order to purchase or redeem a U.S. savings bond, an investor must be a U.S. citizen, official U.S. resident, or U.S. government employee (regardless of citizenship status).

U.S. savings bonds are among the safest types of investments, as they are endorsed by the federal government and are, therefore, risk-free. Although these bonds do not earn much interest compared to the stock market, they do offer a less volatile source of income. They offer a way to save for future expenditures, as they cannot be cashed until at least 12 months after purchase, and the longer you wait to cash the bond, the more interest it accrues.