What is a Treasury savings bond?
Key takeaways
Treasury bonds (U.S. savings bonds) are a low-risk investment where you lend money to the U.S. government and receive your principal back plus interest.
They are issued by the U.S. Treasury and mainly come in two types: Series EE bonds and Series I bonds.
This guide explains the differences between these bonds, how their interest rates work, and how to calculate a savings bond’s value.
Savings bonds: Low risk long-term investments
The U.S. Treasury offers both marketable securities and non-marketable securities.
Marketable simply means you’re able to transfer the security to someone else. You can also sell it before it reaches maturity.
There are several types of marketable securities that the Treasury offers, like Treasury Bills, Treasury Notes, and Treasury-Inflation Protected Securities (TIPS). Treasury savings bonds on the other hand are non-marketable, because they’re registered to one person’s Social Security number.
Savings bonds as standalone investments vs. part of a diversified portfolio
U.S. savings bonds are backed by the U.S. government, meaning that they’re generally regarded as a safe investment.
Often, in higher value portfolios, asset managers will invest a portion of an investor’s portfolio in bonds to diversify the portfolio and hedge it against riskier investments. But treasury bonds can also be an affordable and safe way to invest money as a standalone offering.
Treasury bonds also allow you to earn interest for up to 30 years and are sold in amounts as little as $25, meaning they are a more accessible investment option. They come in two types: EE savings bonds and I savings bonds.
What is a Series EE savings bond?
Series EE savings bonds, more often referred to simply as “EE bonds” have the following characteristics and benefits:
- Guaranteed to double in value within 20 years.
- Earn a fixed interest rate.
- Current Rate: 2.70% for bonds issued from May 1, 2024, to October 31, 2024.
- Available electronically and securely stored in your TreasuryDirect account.
- Purchase amounts range from $25 to $10,000.
- Annual purchase limit: $10,000 per calendar year.
- Redeemable after 1 year; however, cashing in before 5 years results in a 3-month interest penalty.
What is a Series I savings bond?
Series I savings bonds, commonly referred to as “I bonds” have the following characteristics and benefits:
- Offer protection against inflation with an interest rate adjusted every 6 months based on inflation rates.
- Current Rate: 4.28%, which includes a fixed rate of 1.30%, for bonds issued from May 1, 2024, to October 31, 2024.
- Primarily available electronically via TreasuryDirect (minimum amount $25).
- Option to use your IRS tax refund to purchase paper I bonds (minimum amount $50).
- Annual purchase limit: $10,000 in electronic I bonds and an additional $5,000 in paper I bonds.
- Redeemable after 1 year; however, cashing in before 5 years results in a 3-month interest penalty.
- The interest rate is a combination of a fixed rate and the inflation rate.
Uncovering the interest rate of a bond & calculating its value
What is the interest rate of a savings bond?
The interest rates of EE vs I bonds differ. They also change over time.
How to find out what a savings bond is worth
You don’t need to know the interest rate if you calculate the value of the bond with Treasury Direct’s online tools.
- For paper bonds: Use TreasuryDirect’s savings bond calculator by inputting your series (type of bond), denomination (initial principal), bond serial number, and issue date.
- For electronic bonds: Log in to your TreasuryDirect online account to find out the current value of an electronic savings bond.
Pros & cons of investing in savings bonds
The U.S. Treasury guarantees that the value of an EE bond at 20 years will be double what you initially paid for it. For I bonds, it guarantees that the interest rate of an I bond will never fall below zero. But with this high degree of safety comes some potential drawbacks.
Here are several reasons why you might consider alternative investments:
- Long Maturity Period: Most savings bonds have a maturity period of 20-30 years, so they are considered long-term investments. This makes them unsuitable for individuals who require access to liquid capital.
- Early Redemption Penalties: While you can redeem an I bond or EE bond before its date of full maturity, after an initial period of 12 months, if you cash in the bond in less than 5 years, you lose the last 3 months of interest.
- Relatively Low Returns: With their lower level of risk, savings bonds also offer lower returns than other investments, even those regarded as safe such as high yield savings accounts and no penalty CDs.
- Annual Purchase Limits: In any one calendar year for one Social Security Number, you may only buy up to $10,000 in electronic EE bonds, $10,000 in electronic I bonds, and $5,000 in paper I bonds (with your tax refund).
Save safely with Raisin while maintaining access to funds
Raisin’s partner banks and credit unions offer a range of high-yield savings accounts with no fees and a minimal $1 minimum deposit that provide 24/7 online access to your funds. Opening a savings account through the Raisin platform is easier than ever. Head to our savings accounts page to get started.
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