What is a savings bond? How I bonds and EE bonds work

The short answer: a savings bond is a loan to the U.S. government that pays you interest. You buy it for $25 or more, it grows for up to 30 years, and you can cash it after 12 months.

• Two types, both sold only online through TreasuryDirect
• Yearly limit: $10,000 per person per series
• Cash before 5 years and you lose the last 3 months of interest
• No state or local income tax; federal tax is due on the interest
• Next step: Plan it with the 100 Envelope Savings Challenge ($3.99).

A savings bond is a loan to the U.S. government that pays you interest. You buy it for $25 or more, it grows for up to 30 years, and you can cash it after 12 months. Today there are two types, Series EE and Series I, and both are sold only online through TreasuryDirect. Below is how savings bonds work, current rates from TreasuryDirect's I bond page, how I bonds compare with EE bonds, and when a savings bond makes sense for a family budget.

Savings bonds work best for money you can leave alone. If you are still building the cash to buy one, a simple challenge helps. Our 100 Envelope Savings Challenge ($3.99) includes the 100 envelope chart, a half version, a 52-week challenge and a spreadsheet.

What is a savings bond, in plain terms

When you buy a savings bond, you lend money to the federal government. In return, Treasury adds interest to the bond's value every six months. You do not get interest checks in the mail. Instead, the interest builds up inside the bond, and you get it all when you cash the bond. Because the bond is backed by the U.S. government, it is one of the safest places to keep savings, though not the fastest-growing.

Key facts that apply to both types:

I bonds vs EE bonds

The biggest difference is how the rate is set.

TreasuryDirect posted the November 1, 2026 rates above; they apply to bonds issued through April 30, 2027, and the next reset is May 1, 2027. Rates change on May 1 and November 1 each year, so check TreasuryDirect's EE bond page and the I bond page for the current numbers before you buy. The EE doubling guarantee is worth noticing: a bond held for 20 years is worth twice what you paid, which works out to about 3.5% a year, even though the stated rate is lower.

How to buy a savings bond

1. Open a TreasuryDirect account. You need a Social Security number, a U.S. address, a checking or savings account and an email address.
2. Choose the series. Pick I bonds for inflation protection or EE bonds for a long hold.
3. Choose the amount. Anything from $25 up to the yearly limit. You can set up a recurring purchase from your bank account.
4. Pick the owner. Buy for yourself, or buy a gift bond for someone else using their Social Security number.
5. Keep a record. Write the purchase date, amount and series in your savings tracker so you know when the 12-month and 5-year marks arrive.

TreasuryDirect's buy a bond page walks through each step. The account is free; there are no fees to buy or cash.

How to cash a savings bond

Electronic bonds are cashed in TreasuryDirect, and the money goes to your linked bank account. Paper bonds can be cashed at many banks or through Treasury. TreasuryDirect's cashing page lists the options. Before you cash, check these three points:

• Has it been 12 months? You cannot cash before then.
• Has it been 5 years? If not, the last 3 months of interest are taken off.
• Is it past 30 years? If so, it has stopped earning and should be cashed.

Old paper bonds often turn up when sorting a parent's papers. A home inventory binder or an emergency binder is a good place to list them so they are not lost.

How savings bond interest adds up: an example

Here is a simple example using the EE bond's 20-year guarantee. Say you buy a $1,000 EE bond for a newborn:

For an I bond, the value depends on inflation, so nobody can promise the 20-year value up front. What is known is that the fixed part of the rate stays for the life of the bond, and the inflation part resets every six months. If inflation is high, the bond earns more; if prices fall, the composite rate cannot drop below zero.

To estimate a yearly bond habit, decide on a monthly amount and add it to your budget like any bill. $50 a month is $600 a year in bonds, well under the yearly limit, and a recurring purchase in TreasuryDirect can buy it automatically.

Savings bonds and taxes, step by step

Savings bond taxes are simpler than they sound:

1. No state or local income tax. Bond interest is exempt at the state and local level.
2. Federal tax is due on the interest. Most people wait and report it the year they cash the bond or it reaches 30 years.
3. You can report yearly instead. Some families choose this for a child's bond, since a child's small yearly interest may owe little or no tax.
4. Education exclusion. If you pay qualified higher education costs in the same year you cash, some or all of the interest may be excluded, subject to income limits and IRS rules.
5. You get a 1099-INT. When you cash a bond, Treasury reports the interest, and the form is in your TreasuryDirect account.

When a savings bond fits your budget

Savings bonds are a good match for some goals and a poor match for others.

A common plan is to build an emergency fund in a regular or high-yield savings account first, then put extra long-term savings into I bonds. Our guide to sinking funds shows how to split savings by goal, and the emergency fund tracker helps with the first step.

Savings bonds for kids

A savings bond is a classic gift for a new baby, a birthday or a graduation. Electronic gift bonds are bought in your own TreasuryDirect account and delivered to the child's account later. A parent can open a minor linked account for a child under their own TreasuryDirect login. Because the money is locked for at least a year, it teaches patience. Show the child the value each birthday so they can watch it grow.

Common savings bond mistakes

• Using bond money as an emergency fund. The 12-month lock means it is not there when you need it.
• Cashing just before the 5-year mark. Waiting a few more months can save 3 months of interest.
• Forgetting old paper bonds. Bonds stop earning at 30 years. Check any old bonds you hold.
• Ignoring taxes. You owe federal tax on the interest when you cash, unless you report it yearly or qualify for the education exclusion.
• Buying more than the limit. The $10,000 yearly limit is per series, per person.

Track your bonds with the rest of your savings

Bonds are easy to forget because they do not show up in your bank app. Keep them on the same list as your other goals:

• Sinking Funds Tracker ($4.99): up to 20 savings goals with progress bars and a deposit log. Add a line for each bond with its purchase date.
• Annual Budget Spreadsheet ($6.99): plan a monthly bond purchase as a line in your budget, with planned vs actual for all 12 months.
• Ultimate Budget Bundle ($19.99, $46.42 if the items are bought separately): the budget, debt and savings spreadsheets together.

A savings bond will not make you rich, but it is safe, simple and a good home for money you can leave alone for a while.