Best Savings Bonds

Series I Savings Bonds earn inflation-adjusted returns for up to 30 years

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With U.S. Savings Bonds, consumers and businesses can receive a guaranteed interest rate on their savings. These bonds help fund federal spending with terms of up to 30 years. The U.S. government currently issues two types of savings bonds–Series EE and Series I–that can be bought online through its Treasury Direct website.

Although there are only two types of U.S. Savings Bonds, their uses can be quite flexible and each one can be an ideal investment in certain situations. To determine the best U.S. Savings Bonds for a variety of situations, we analyzed the benefits of each type of savings bond, their interest rates, maturities, and other relevant factors. The best savings bonds are easy to purchase, offer attractive interest rates, and include tax benefits on the interest they earn.

Best Overall & Education Planning : Series I Savings Bonds


Treasury Direct

Treasury Direct

  • Series I Savings Bond
  • Interest rate: Currently 3.54%, updates every six months
  • No. of Years: Up to 30 years
Why We Chose It

Series I Savings Bonds are the best overall because their earnings adjust with inflation, come in both paper and electronic forms, and may avoid Federal taxation when used to pay for education.

Pros & Cons
Pros
  • Interest rate adjusts every six months based on inflation

  • Can purchase electronic or paper bonds

  • Earnings exempt from state income tax

  • May avoid Federal taxes when used for education

  • Can purchase for as low as $25

Cons
  • Must own for one year before selling

  • Lose three months' of interest if sold before five years

  • Interest rates are not guaranteed

  • Maximum purchase of $10,000 per year

  • May only buy paper bonds with a Federal tax refund

Overview

Series I Savings Bonds are our choice for the best U.S. savings bonds because they offer a higher return that adjusts with inflation, can be delivered electronically or in paper form, and may avoid Federal taxation when used to pay for school. Series I Savings Bonds are also the best choice for education savings because their earnings have tax benefits and are designed to outpace inflation.

Bondholders will continue to earn interest for up to 30 years or until the bond is cashed in, whichever comes first. The current rate is 3.54% (as of August 2021) for bonds issued between May 2021 and October 2021. Interest rates are a combination of a fixed rate plus a semi-annual inflation rate that adjusts every six months.

These bonds can be purchased for as little as $25, with a maximum of up to $10,000 per calendar year per Social Security Number. Electronic bonds have a minimum purchase of $25 and a maximum of $10,000 with denominations of any amount in between in penny increments. Paper bonds start at $50 each, come in denominations of $50, $100, $200, $500, and $1,000, and have a maximum purchase amount of $5,000 per year. Electronic savings bonds can be purchased at any time through Treasury Direct, while paper bonds are only available with your IRS tax refund.

Series I Savings Bonds must be held for at least one year before they can be redeemed. These bonds are known as zero-coupon bonds, which means that they do not receive regular interest payments. The interest accrues and is paid out when the bond is cashed. If you redeem them during the first five years, you'll forfeit the interest earned from the previous three months. After five years, there is no penalty.

Interest earned is taxable at the Federal level, however, it may be excluded when used to pay for education. Savings bonds are exempt from state and local income taxes but you may owe estate or inheritance taxes, depending on your personal circumstances.

Best Gift & Retirement Planning : Series EE Savings Bonds


Treasury Direct

Treasury Direct

  • Series EE Savings Bond
  • Interest rate: Currently 0.10%, fixed for the term of the bond
  • No. of Years: Up to 30 years
Why We Chose It

Series EE Savings Bonds are the best gift, retirement planning, and for diversifying a portfolio because they provide a guaranteed rate of return and, even if interest rates are lower, the savings bond will be worth double its face value after 20 years.

Pros & Cons
Pros
  • Fixed-rate of interest

  • Worth double face value after 20 years

  • Earnings exempt from state income tax

  • May avoid Federal taxes when used for education

  • Can purchase for as low as $25

Cons
  • Must own for one year before selling

  • Lose three months of interest if sold before five years

  • Interest rates are lower than alternatives

  • Maximum purchase of $10,000 per year

  • Cannot buy paper savings bonds

Overview

Series EE Savings Bonds are the best savings bonds for gifts, retirement planning, and diversifying a portfolio. These bonds are available in any amount to the penny ranging from $25 to $10,000 with a maximum purchase of $10,000 per year for each Social Security Number. Investors can purchase them directly through Treasury Direct on a one-off purchase or through regular recurring payroll deductions. Series EE Bonds are only available in electronic form.

The interest rate on Series EE Savings Bonds varies depending on when they are purchased. The current interest rate is 0.10% (as of August 2021). The U.S. Treasury Department updates the rates on new bonds each May 1 and November 1. When you buy a saving bond, the rate is fixed until it reaches maturity 30 years later.

Series EE Savings Bonds are a good choice for gifts, retirement planning, and diversification because they are guaranteed to double in value if held for at least 20 years. Even if the interest rate is low, the U.S. government will make a one-time adjustment to fulfill this guarantee. This guarantee provides assurances for investors who are planning for retirement or diversifying their portfolios with less risky assets.

You cannot sell a Series EE Savings Bond until you have held it for at least one year. After that, it is completely liquid and can be cashed at any time. If you redeem the savings bond during the first five years, there is a penalty of three months' interest. After five years, there are no more penalties.

Interest earned on savings bonds is not taxed until it is redeemed. Investors pay federal income taxes on the earnings, but they are exempt from state and local taxes. The earnings may avoid federal taxes when used to pay for higher education expenses.

Final Verdict

Our choice for the best savings bond is the Series I Savings Bond. It offers a more competitive rate of interest that adjusts with inflation and you can purchase both digital or paper versions of the bond. The interest rate adjusts every six months, which allows investors to benefit from rising inflation rates and avoid locking in a low, fixed rate when interest rates are below historical averages. You can buy digital Series I Savings Bonds in any denomination above $25 with a maximum of $10,000 per year, so they are a good fit for anyone's budget.

Compare the Best Savings Bonds

Company Type of Savings Bond  Interest Rate  No. of Years  Minimum Purchase  Maximum Purchase per year 
U.S. Treasury Series EE 0.10% fixed Updated every 6 months Guaranteed to double in value after 20 years Up to 30 years $25 $10,000
U.S. Treasury  Series I  3.54% variable Updated every 6 months Up to 30 years  $25 electronic; $50 paper  $10,000 electronic; $5,000 paper 

How to Choose the Best Savings Bonds

When choosing the best savings bonds for your situation, it helps to know what features are most important to you. Series I and Series EE Savings Bonds have many similarities, but there are a few key differences that can impact your decision.

  • Minimum Investment Amount: You can buy either savings bond with as little as $25. The bonds are sold at face value and accrue interest each year until they are cashed out.
  • Time horizon: You cannot sell either bond until after one year has passed. There is a penalty of three months' interest if you sell during the first five years. Both bonds will earn interest for up to 30 years which makes them ideal investments as long-term savings bonds.
  • Fixed vs. Variable Rate of Interest: Series EE Savings Bonds earned a fixed rate of interest until maturity. The interest rate of Series I Savings Bonds adjusts every six months depending on the inflation rate.
  • Guaranteed rate of return: Only Series EE Savings Bonds offer a guaranteed rate of return until it matures. Additionally, if interest rates are low, these bonds are guaranteed to be worth twice what you pay for it after 20 years.
  • Electronic or Paper Savings Bonds: Both savings bonds can be purchased electronically, but if you want a paper savings bond, then your only choice is a Series I Savings Bond.
  • Tax Benefits: People who own either type of bond are exempt from state and local taxes. Interest earned is subject to Federal income taxes. However, if you redeem the bonds to pay for higher education expenses, you may be able to avoid paying federal income taxes on the interest.

Savings Bonds vs. Certificates of Deposits (CDs)

Savings Bonds and CDs are both popular choices for risk-averse investors. They have a lot of similarities in that they are easy to purchase and offer interest rates that are fixed for periods of time. For short-term investors of less than one year, CDs are the better choice. You cannot cash out a savings bond until you've owned it for one year. Most banks offer CDs with a variety of terms that typically range from one month to five years.

There are many advantages to savings bonds though. You can purchase a savings bond today and allow it to grow for the next 30 years without worrying about what the interest rates are when your CD matures. Additionally, savings bonds offer tax advantages that CDs do not. Your interest earnings are not subject to state or local income taxes and may be exempt from Federal income taxes when used to pay for education expenses.

Currently, Series I Savings Bonds also offer rates that are substantially higher than most short-term CDs. Investors can take advantage of these higher rates and have full liquidity after just one year. While there is a three-month interest penalty if you redeem a savings bond in the first five years, many longer-term CDs have interest penalties that have higher penalties.

Frequently Asked Questions

When Is the Best Time to Cash Savings Bonds?

The best time to cash savings bonds is after holding them for at least five years. You cannot sell them until after you've held them for one year, and if you sell before five years, you'll owe three month's interest as a penalty. Ideally, Series EE Savings Bonds should be held for at least 20 years in order to benefit from the guarantee that they'll be worth double their face value.

Are Savings Bonds a Good Investment for Retirement?

Savings bonds can be a good addition to your portfolio for retirement. However, the interest rates tend to be low because of their government guarantees. Other investments, such as stocks, tend to outperform savings bonds over time. Investors who are looking to balance out their portfolio, reduce risk, and add guaranteed rates of return can add savings bonds to their portfolios.

How Much Do Savings Bonds Cost?

Savings bonds are sold at face value with minimum values starting at just $25. They can be purchased in any amount to the penny above $25, including specific dollar and cents amounts, such as $25.63. The maximum savings bond face value is $10,000.

Methodology

To pick the best savings bonds, we analyzed the savings bonds currently offered by the U.S. Treasury Department. At this time, only two savings bonds are available for purchase, so we compared the bonds against each other. We gathered data about purchase methods, minimum purchase amounts, interest rates, penalties, maturities, taxation, and other features to determine which savings bond is best for a variety of uses.