Looking for a nearly risk-free way to save for the future?

A savings bond might be right for you.

With amounts ranging from $25 to $10,000, U.S. savings bonds fit almost any budget.

Money balloons fly in the sky with men attached to them.

Most importantly: Youll never lose value on your initial investment.

Savings bonds typically dont earn much interest.

However, thats not always the case, especially during times of high inflation.

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Curious to learn how savings bonds work?

What Is a Savings Bond?

A savings bond is essentially a loan to the federal government issued by the U.S. Treasury.

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Think of it as an IOU from Uncle Sam.

There are two types of savings bonds:

Savings bonds are sold at face value.

If you want to invest $100, for example, you buy a $100 bond.

There are no fees or hidden expenses.

After you purchase a bond, you start earning interest on your principal.

Interest can accumulate for as long as 30 years.

Savings bonds are considered one of the safest investments out there.

The interest rate cant go below zero and the bond value cant decline.

Looking for More Ways to Save Beyond Savings Bonds?

Want to pad your savings with more than just savings bonds?

Weve got a few ideas for you.

Heres a list of some of our favorite ways to save.

How Do Savings Bonds Work?

Savings bonds work by paying youcompound intereston your deposit.

A savings bond accrues interest over time, though interest doesnt pay out until you redeem the bond.

Interest on savings bonds is compounded semiannually, or twice a year.

Interest is then earned on this new, higher principal value.

Here are some other characteristics of savings bonds:

Where Do You Buy a Savings Bond?

The fastest and easiest way to buy savings bonds is from the U.S. Treasurys online portfolio platform,TreasuryDirect.

Electronic bonds purchased through TreasuryDirect are usually added to your online account in just one business day.

The U.S. Treasury also lets you purchase savings bonds via automatic payroll deductions.

To get started, log into your TreasuryDirect account and set up a Payroll Savings Plan.

Decide what pop in of savings bond you want to purchase along with the dollar value.

These payroll deductions continue automatically until you tune up your preferences.

Once upon a time, you could buy paper savings bonds from your local bank or credit union.

This hasnt been the case since 2012.

(Paper EE bonds are no longer available.)

you might purchase up to $5,000 in paper I bonds each calendar year.

If you use tax preparation software like TurboTax, the program will walk you through the process.

Series I Bonds

Series I bondsrates are tied to inflation.

As inflation goes up, so does the variable interest rate on these bonds.

On May 1, 2025, The Treasury will calculate a new inflation rate.

If inflation continues to heat up, you could earn more interest.

If it cools off, your variable rate declines.

Remember: Even if inflation goes down, you wont lose any money.

You just wont earn as much interest as you did when inflation was higher.

Series EE Bonds

EE savings bonds earn the same fixed interest rate for up to 30 years.

It doesnt change over time.

Series EE savings bonds purchased from November 2024 through April 2025 earn an annual rate of 2.60%.

Series E bonds were sold until 1980 and are no longer issued.

How to Cash in Savings Bonds

Cashing in electronic savings bonds is quick and easy.

Simply sign in to your account on TreasuryDirect and follow the redemption instructions.

Pros and Cons

Savings bonds can be a great way to diversify your portfolio.

But theyre not the best investment in every situation.

Savings Bonds FAQ

When inflation is high, Series I bonds are a great investment.

They earn an attractive rate that compounds twice a year.

you could start small and your investment is backed by the U.S. government.

But when inflation is lower, other investments have historically earned higher returns.

The stock market, for example, has historically earned a 10% annual return.

They can also be useful to pay for future college expenses.

You dont pay federal taxes on accrued interest until you redeem the savings bond.

Savings bonds arent subject to state or local taxes either.

Savings bonds used to finance education wont be subject to any taxes.

To give an electronic bond to someone else, both you and your recipient must create a TreasuryDirect account.

You will also need to know the recipients full name and Social Security number or taxpayer ID number.

Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.