Knowledge Is Key To A Safe Savings Bond

A savings bond, just like an investment bond, is a form of debt. In other words, it is a loan. But instead of loaning money to a company, this bond is issued by a government to pay for money borrowed by that government.

Printed information on a Savings Bond

I'm sure that you know they are useful investing tools. But did you know that they can be used towards:

  • Financing higher education
  • Supplemental retirement income
  • Gifts (birthday, graduation, etc.)
  • Just about any special event

What are Savings Bonds?

Most of the time, when someone refers to a savings bond, they are talking about the bonds issued by the U.S. Department of the Treasury.

You can purchase them if you have a Social Security Number and you are a:

  • resident of the United States, or
  • citizen of the United States living abroad with a U.S. address of record), or
  • civilian employee of the United States regardless of residence

Minors (children under that age of 18) can also own these bonds.

They come four different flavors:

  • Series EE Bonds, including:
    • Paper EE bonds
    • Electronic EE
  • Series I Bonds

Series EE Bonds

The Series EE bonds come in electronic and paper form.

In either case, you can only by $5,000 (face value) or less during any calendar year.

Also, if you decide to cash in Series EE bonds within the first 5 years of ownership, you’ll lose the 3 most-recent months' interest payments. After 5 years, you won’t be penalized.

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Safe Investing Tip:
I've had several readers ask me about "E Bonds". They were the predecessor to EE Bonds, but are no longer issued by the U.S. Treasury.

Paper EE Bonds

These bonds are purchased at a discount (50%) of their face value. For example, a $100 paper EE bond can be purchased for $50.

Paper EE bonds increase in value as the interest is added to the principal. After 30 years, paper EE bonds mature, and the bondholder (you) receive all of the money you paid for the bonds, plus all of the interest.

Individuals, corporations, associations, public/private organizations, and fiduciaries can all own paper EE/E Bonds.

Electronic EE Bonds

Electronic EE bonds are bought at face value (you pay $50 for a $50 bond). Interest is deposited electronically into your account, and you are paid the full value when it matures.

Effective April 2009, individuals and various types of entities (trusts, estates, corporations, partnerships, etc.) can have TreasuryDirect accounts and own electronic this type of bond.

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Safe Investing Tip:
You can trade in your paper EE bonds for electronic ones at, through their SmartExchange program. Click here for more information.

Series I Bonds
Similar to the EE Bonds, Series I bonds are available in paper and electronic versions, you can buy up to $5,000 (face value) in any calendar year, and if you redeem Series I bonds in the first five years, you’ll forfeit the three most recent months’ interest.

These bonds are sold at face value and offer a fixed rate of interest, adjusted for inflation.

Paper I Bonds can be bought in $50, $75, $100, $200, $500, $1,000, and $5,000 denominations. Electronic I Bonds can be bought to the penny for $25 or more (for example, you could buy a $25.25 face value bond).

Why Buy Savings Bonds?

These investment instruments are "backed" by the U.S. government, meaning that the government is the one that pays you interest.

Since the possibility of a default by the U.S. government (i.e. bankruptcy) has always been very low, savings bonds are considered to be the safest investment out there.

This does not mean that it cannot or will not happen; only that the probability is low!

U.S. savings bonds also provide tax advantages. A bondholder does not pay state or local taxes on the interest from the bonds.

You can also defer paying federal taxes on the interest (either when you cash in the bond or when it matures).

As an added bonus, they really are "safe"! Each one is registered with the U.S. Treasury’s Bureau of the Public Debt, so you can get replacements if they are lost, stolen, or destroyed.

Factors that affect the price of Savings Bonds?

Series EE Bonds purchased on or after May 1, 2005, earn a fixed rate of return, letting you know what the bonds are worth at all times.

EE Bonds purchased between May 1997 and April 30, 2005, are based on 5-year Treasury security yields and earn a variable market-based rate of return.

For more information, you can visit (they have a savings bond price calculator available for you to use) or the U.S. Department of Treasury's Bureau of the Public Debt.

Where Can You Buy Savings Bonds?

From the government

The fastest way to buy Series EE bonds is through the government, at The bonds are issued directly to you in your TreasuryDirect account.

You have access to your account 24 hours a day, 7 days a week, and can can set up an automatic purchase schedule for as little as $25. Paper bonds are not offered though.

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Safe Investing Tip:
Need some help using the website? Download a free online cheatsheet at

Mail Order

Go to, print out and complete an online order form, then mail it to the address shown on the form.

Banks and other financial institutions (including Internet Banks)

Paper bonds are printed by your instructions to the bank, and then mailed to you within 15 business days.

Your bond's issue date reflects the date of purchase so that no interest is lost.

Payroll Savings Plan

Through your employer, you can buy electronic EE Bonds using the payroll savings option at Click here for more information and the necessary forms.