Savings bonds are government-backed securities issued by the U.S. Department of the Treasury that earn interest over time. You lend money to the federal government, and in return you get a safe, low-risk investment that grows in value until you cash it in. The Treasury currently offers two types: Series EE bonds and Series I bonds, both purchased electronically through TreasuryDirect.gov.
How Savings Bonds Work
When you buy a savings bond, you pay face value and the bond earns interest monthly. That interest compounds semiannually, meaning every six months the Treasury applies your earned interest to the principal, and future interest is calculated on the higher amount. You don’t receive interest payments along the way like you would with a traditional bond. Instead, the value of the bond grows, and you collect everything when you cash it in.
Savings bonds have a 30-year life span. You can hold them for that full period and continue earning interest, but you can cash them in any time after the first 12 months. There is one penalty to know about: if you redeem a bond before holding it for five years, you forfeit the last three months of interest. After five years, there’s no penalty at all.
Series EE Bonds
EE bonds pay a fixed interest rate that’s set when you buy them and stays the same for at least the first 20 years. For bonds purchased between November 1, 2025 and April 30, 2026, that rate is 2.50%. The standout feature of EE bonds is a Treasury guarantee: your bond will be worth double what you paid after 20 years. If the fixed rate alone wouldn’t get you there, the Treasury makes a one-time adjustment at the 20-year mark to ensure the value doubles. That guarantee effectively works out to about 3.5% annually if you hold for the full 20 years, regardless of the stated rate.
EE bonds are only available electronically. They’re often used for long-term goals where you’re comfortable locking money away for two decades to get the doubling guarantee.
Series I Bonds
I bonds are designed to protect your purchasing power against inflation. Their interest rate has two components: a fixed rate that stays the same for the life of the bond and an inflation rate that the Treasury recalculates every six months based on changes in the Consumer Price Index. The combined rate for I bonds issued from November 2025 through April 2026 is 4.03%. That composite rate resets every six months, so the return on your bond will fluctuate over time, but the Treasury guarantees the rate will never drop below zero.
Like EE bonds, I bonds are now electronic only (as of January 2025). Because their rate adjusts with inflation, I bonds tend to be more popular during periods of rising prices.
How Much You Can Buy
The Treasury limits how much you can purchase each calendar year. Each Social Security number can buy up to $10,000 in electronic I bonds per year and a separate $10,000 in electronic EE bonds per year. Those are individual limits, so a married couple could each buy $10,000 in I bonds, for example, totaling $20,000 for the household.
You can buy bonds in any amount from $25 up to $10,000, including to the penny. There’s no need to buy in round denominations like the old paper bonds required.
Tax Rules for Savings Bond Interest
Savings bond interest is subject to federal income tax but exempt from state and local income taxes. That state tax exemption can make savings bonds more attractive compared to other fixed-income options, especially if you live in a high-tax state.
You have a choice about when to pay federal tax on the interest. Most people defer it, meaning they don’t report anything until the year they actually cash in the bond or it matures. At that point, the Treasury issues a 1099-INT form for the full amount of accumulated interest. Alternatively, you can report the interest each year as it accrues. This might make sense if you’re buying bonds for a child who has little or no other income, since reporting small amounts annually could keep the tax bill at zero.
If you’ve been deferring and want to switch to annual reporting, you can do so without IRS permission, but you have to report all previously unreported interest in the year you switch, and the change applies to all savings bonds under that Social Security number. Switching in the other direction, from annual reporting to deferring, requires filing IRS Form 3115.
Who Owes the Tax
The person who paid for the bond generally owes the tax on the interest. If you buy a bond in your name, you owe the tax. If you buy a bond and name someone else as the sole owner (a common approach with bonds purchased for children), the named owner owes the tax, not you. Co-owners who split the purchase cost report interest in proportion to what each person paid.
How to Buy and Cash In
You buy savings bonds through a free account at TreasuryDirect.gov, linking a bank account for purchases and redemptions. The process is straightforward: create an account, choose your bond type, enter an amount, and fund it from your bank. Bonds show up in your account and begin earning interest from the first day of the month you buy them.
When you’re ready to cash in, you redeem bonds through the same TreasuryDirect account and the proceeds transfer to your linked bank. For older paper bonds you may still have in a drawer, most banks and credit unions can redeem them in person. Remember the 12-month minimum holding period and the three-month interest penalty if you cash in before five years.
When Savings Bonds Make Sense
Savings bonds aren’t designed to compete with stocks or higher-yielding investments. Their appeal is safety and simplicity. They’re backed by the full faith and credit of the U.S. government, so the risk of losing your principal is essentially zero. I bonds offer built-in inflation protection that’s hard to find elsewhere without taking on market risk. EE bonds reward patience with that guaranteed doubling at 20 years, which can work well for goals like future education costs.
The annual purchase limits and the 12-month lockup mean savings bonds work best as one piece of a broader financial picture rather than a primary investment vehicle. They’re particularly useful as a safe place to park money you won’t need for at least a year, earning a competitive rate without the volatility of the stock market or the complexity of other Treasury securities.