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What Are Savings Bonds?
US Savings Bonds are US government bonds which can be purchased in smaller denominations than other types of US government securities such as Treasury Bills, or T-Bills. Unlike other government debt instruments, savings bonds are non-marketable. In addition, savings bonds are registered securities and not bearer instruments. Having possession of a savings bond does not give the right to redeem, or cash in, the savings bond. Savings bonds that are lost can be replaced through the Treasury.
There are several types of US savings bonds distinguished from one another via a series letter. The most common type of bond is the Series EE savings bond. There are also Series I Savings Bonds, which have an interest component that protects against inflation, and Series H/HH savings bonds are still relatively common, although they are no longer issued and cannot be purchased as of September 1, 2004.
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Series E Savings Bonds
The original US Savings Bonds were lettered beginning with A. Each subsequent release took the next letter of the alphabet. Series E bonds were first issued during World War II to help finance fighting the war. These bonds became known as War Bonds.
After the war, Series E Savings Bonds continued to be sold until 1990 when the current Series EE bonds took their place. However, plenty of Series E bonds have remained in the hands of investors. Come 2010, though, the last of the Series E bonds will stop earning interest.
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How Do Savings Bonds Work
Savings bonds are sold directly by the U.S. Department of Treasury through its website at TreasuryDirect.gov (NOT treasurydirect.com), and may be purchased in denominations of $50, $75, $100, $200, $500, $1,000, $5,000, and $10,000. These savings bonds are purchased at one-half of their face value. Thus, a $50 Series EE savings bond is sold for $25.
After 5 years, Series EE savings bonds can be redeemed at any time. Prior to 5 years, the bonds may be redeemed, but with a penalty of 3 months worth of interest. Up to $5,000 in savings bonds can be purchased per Social Security number in each calendar year.
Savings Bonds purchased prior to April 2005 earn an interest rate which is adjusted each May and November. However, all US Savings Bonds purchased after May 2005 have a fixed rate of interest for the life of the bond. The current interest rate for Series EE bonds is 0.70%.
In addition to its regular interest rate, Savings Bonds come with the interesting feature of being guaranteed to double after 20 years. In other words, the bond will be worth its face value no later than 20 years after purchase.
The Treasury offers many tools including a savings bond calculator and the means to replace lost or destroyed savings bonds via Treasury Direct.