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If you’re looking for a simple way to invest in your future while still being able to easily access your money in case of emergencies, then savings bonds may be your answer. Issued by the U.S. Treasury, savings bonds can be purchased in amounts ranging from $25 to as much as $10,000. Every year that you hold a savings bond, its value increases until it matures at 30 years. Before buying savings bonds, take a few minutes to understand how they work, where to get them and which kind of bond is right for you.

How Do Savings Bonds Work?

The first thing to know is that there are two types of savings bonds: EE bonds and I bonds. EE bonds are the most common, and the new issues of these are guaranteed to double in value after 20 years regardless of changing interest rates. However, I bonds don't share this guarantee. Both EE and I savings bonds mature fully after 30 years, but you can cash them in at any time after a year. Be aware that when you redeem savings bonds prior to maturation, you’ll lose the previous three months’ interest, but the interest accrued before that is still yours to keep.

How Do Savings Bonds Accrue Interest?

The two types of savings bonds accrue interest differently, which is an important factor to consider when deciding which is right for you. EE bonds that were issued after May 2005 earn a fixed rate of interest, which is set when you purchase them. This means if you bought an EE Bond between Nov. 1, 2015 and April 30, 2016, the interest rate is 0.10 percent. According to the financial services website, which is part of the U.S. Department of the Treasury Bureau of the Fiscal Service, the interest is added to the value of the bond twice a year, so the existing interest earned will accumulate additional interest earnings.

The interest on I bonds is calculated based on a fixed interest rate, like EE bonds, and also adjusts for inflation. Although the interest rate doesn't change, the government adjusts the inflation value every six months. For example, if you bought an I bond between Nov. 1, 2015 and April 30, 2016, states that the combined rate of return, or "composite rate," would have been 1.64 percent for the first six months.

Where Do You Get Savings Bonds?

Until a few years ago, you could buy paper savings bonds at most financial institutions, like banks and credit unions. Today, however, you get them directly from the U.S. Department of the Treasury's website, This is currently the only way you can get savings bonds, with one exception: paper I bonds are also available when you buy them as part of your income tax refund. To get started investing in savings bonds, create a free account. All you need is an email address, your SSN or federal tax identification number, a bank account number, and your bank's routing number.

When Are Savings Bonds a Good Investment?

Savings bonds are an ideal low-risk, long-term investment when you want to set money aside. Since the bonds retain their value, its worth will only increase over time. People typically purchase savings bonds for:

  • an emergency fund
  • an education fund
  • a gift
  • as part of a retirement portfolio

The interest earned from savings bonds is subject to federal income tax, as well as estate and gift taxes, but isn’t subject to state or local income tax. also states that when inflation is low, as it has been in recent years, EE bonds may be preferable to I bonds in certain circumstances, but in periods of high inflation, I bonds generally offer a better return.

Either way, bonds can help you establish future financial security and keep your funds accessible for a rainy day. Contact Navy Federal to learn more about investing and how purchasing bonds can help you build a strong portfolio.

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.