Key Takeaways
- Series EE Bonds are guaranteed to double in value after 20 years
- Series I Bonds protect against inflation with variable rates
- You must hold bonds for at least 1 year before cashing
- Cashing before 5 years forfeits the last 3 months of interest
- Annual purchase limit is $10,000 per bond type ($15,000 with tax refund for I Bonds)
What Are US Savings Bonds?
US Savings Bonds are low-risk, government-backed securities that earn interest over time. They are issued by the US Department of the Treasury and are one of the safest investment options available, backed by the full faith and credit of the US government.
There are two main types of savings bonds currently available for purchase:
Series EE Bonds
Series EE Bonds earn a fixed rate of interest for up to 30 years. The most attractive feature is that EE Bonds purchased after May 2005 are guaranteed to double in value after 20 years, regardless of the stated interest rate. This effectively guarantees a 3.5% annual return if held for 20 years.
Series I Bonds
Series I Bonds (I Bonds) are inflation-protected savings bonds. They earn a combination of a fixed rate plus an inflation rate that adjusts every six months based on the Consumer Price Index (CPI). This makes them an excellent hedge against inflation.
| Feature | Series EE Bond | Series I Bond |
|---|---|---|
| Interest Rate | Fixed rate | Fixed + inflation rate |
| Rate Changes | Never | Every 6 months (inflation portion) |
| Doubling Guarantee | Yes, at 20 years | No |
| Purchase Limit | $10,000/year | $10,000/year (+$5,000 via tax refund) |
| Best For | Long-term savings, education | Inflation protection |
How Savings Bond Interest Is Calculated
Value = Face Value x (1 + r/2)2n
Savings bonds compound interest semiannually (every 6 months). For Series EE Bonds, the rate is fixed at purchase. For I Bonds, the composite rate changes every May and November based on inflation data.
Series I Bond Rate Calculation
The composite rate for I Bonds is calculated using this formula:
Composite Rate = Fixed Rate + (2 x Inflation Rate) + (Fixed Rate x Inflation Rate)
Pro Tip: Timing Your I Bond Purchase
I Bond rates are announced in May and November. If a new rate is higher, buy at the end of the month to lock in the previous rate for 6 months, then get the new rate. If it's lower, buy at the beginning of the month to get more time at the current rate.
When Should You Cash Savings Bonds?
Understanding the optimal time to cash your savings bonds can significantly impact your returns:
- Minimum holding period: You must hold bonds for at least 12 months
- Early redemption penalty: If cashed before 5 years, you forfeit the last 3 months of interest
- Optimal timing: Cash right after interest is credited (every 6 months from issue date)
- Maximum term: Bonds stop earning interest after 30 years
EE Bond 20-Year Guarantee
If you hold an EE Bond for 20 years, the Treasury will make a one-time adjustment to ensure the bond is worth at least double its purchase price. This is a powerful guarantee that effectively provides a 3.5% annual return, regardless of the stated fixed rate.
Tax Benefits of Savings Bonds
Savings bonds offer several tax advantages:
- Federal tax deferral: You don't pay federal income tax until you cash the bond
- State and local tax exempt: Interest is never subject to state or local income tax
- Education tax exclusion: Interest may be completely tax-free if used for qualified education expenses (income limits apply)
Frequently Asked Questions
You can purchase electronic savings bonds directly from TreasuryDirect.gov. Paper I Bonds can also be purchased with your federal tax refund using IRS Form 8888. Banks no longer sell paper savings bonds.
After 30 years, savings bonds reach final maturity and stop earning interest. You should cash them promptly after this point. Many older bonds (Series E, EE, and I) have stopped earning interest and should be cashed immediately.
Yes! You can purchase savings bonds as gifts through TreasuryDirect. You need the recipient's Social Security Number and TreasuryDirect account information. Gift bonds count toward the recipient's annual purchase limit, not yours.
Savings bonds are excellent for conservative investors seeking safety and tax advantages. I Bonds are particularly valuable during high inflation periods. However, for long-term growth, diversified stock index funds historically provide higher returns. Consider savings bonds as part of a balanced portfolio.
Use the Treasury's Savings Bond Calculator at TreasuryDirect.gov or use this calculator. You'll need the bond's series, denomination, issue date, and serial number. For paper bonds, this information is printed on the bond certificate.