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Bottom Line Up Front 

  • Savings bonds are one of the lowest-risk investments available; the two types available now are series EE and I.
  • EE savings bonds earn a fixed amount of interest and are guaranteed to double in value after 20 years.
  • I savings bonds earn interest at a fixed rate plus an adjustable rate, depending on inflation. Their value isn’t guaranteed at maturity.

Looking for a long-term, low-risk way to save for the future or to start investing? A savings bond might be an answer. With amounts ranging from $25 to $10,000, they fit most budgets, and you can’t beat the convenience of being able to buy them from the comfort of your home.

What Is a Savings Bond?

In the 1930s, the U.S. Department of the Treasury created savings bonds as a way to fund the federal government’s borrowing needs. That’s still how they work today. When you buy a savings bond, you’re lending the federal government money. The government then has 20 years to pay you back, with interest. They’re considered one of the lowest-risk investments available since they’re government backed.

How Do Savings Bonds Work?

The two types of savings bonds you can buy today are series EE and I. The main difference between EE and I bonds is the way they earn interest.

How Savings Bonds Earn Interest

EE bonds earn a fixed amount of interest, and their value is guaranteed to double after 20 years. So, if you purchase a $1,000 bond, you’ll pay just $500, but in 20 years, you’ll have $1,000. According to the U.S. Department of the Treasury, interest is added to the value of the bond twice a year.

I bonds are a little different. Their value isn’t guaranteed, and they earn interest at a fixed rate, plus an adjustable rate, depending on inflation. So, although the interest rate doesn’t change, the government adjusts the inflation value every six months. Interest is added monthly for 30 years, unless you redeem it sooner.

Both EE and I bonds mature fully after 30 years, but you can cash them at any time after a year of being issued. If, however, you redeem them within the first five years of the issue date, you lose the previous three months’ interest. The interest earned before that is yours to keep.

When Are Savings Bonds a Good Investment?

If you’re concerned about the ups and downs of the stock market, savings bonds may work well for you. You won’t earn as much on your money as you would with other kinds of investments, but you’re less likely to lose money. Plus, if you need the funds before the bonds mature, they’re easy to cash in.

Where Can I Get Savings Bonds?

Buying a savings bond couldn’t be easier—you can buy them directly from the government online. However, paper I bonds are also available when you buy them as part of your income tax refund. To make your online purchases, you can create a free ManageDirect account with the U.S. Department of the Treasury —you’ll just need to provide an email address, your Social Security Number (or federal tax identification number), a bank account number and your bank’s routing number.

How Can I Cash In My Savings Bonds?

Paper EE bonds can be redeemed at most financial institutions. For EE bonds you purchased electronically, sign in to your account and follow the directions. More details on cashing EE savings bonds are available from the U.S. Department of the Treasury.

Paper I bonds can also be redeemed at most financial institutions. For I bonds you purchased electronically, you can use the cashing securities link when you sign in to your account. You can find additional information on redeeming series I savings bonds from the U.S. Department of the Treasury.

Once you complete the redemption process for electronic savings bonds, the cash value of your bond will transfer within two business days to the bank account you provided when you created your ManageDirect account.

Keep in mind, it’s a good idea to hold on to your savings bonds for at least five years and to know their value. You can find redemption tables on the U.S. Department of the Treasury website or sign in to your ManageDirect account and click the Current Holdings tab to see their current value. For paper bonds, use the Savings Bond Calculator.

Will I Have to Pay Taxes on the Interest?

The interest earned from savings bonds is subject to federal income, estate and gift taxes, but isn’t subject to state or local income tax. Tax benefits may apply when you use bonds to pay for qualified higher education expenses like tuition or textbooks.

Financial and Investing Help

If you’d like help with your investing needs, our financial advisors will evaluate your whole financial picture to help you build a strong, personalized financial plan. Find an advisor in your area.

If your approach to investing is more “do-it-yourself,” our Navy Federal Financial Group Digital Investor is a simple online investing tool that allows you to quickly and easily research, buy and track your investments. You can choose from about 900 available stocks and 100 ETFs—some allow you to invest as little as $1. Check out Navy Federal Financial Group Digital Investor for more information.

This article is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.