U.S. Savings Bonds

Bureau of the Public Debt

A brief description of savings bonds
Savings bonds are issued by the U.S. Treasury Department. They are non-marketable securities. This means you may not sell savings bonds to or buy them from anyone except an issuing and redeeming agent authorized by the Treasury Department. Savings bonds are registered securities, meaning that they are owned exclusively by the person or persons named on them.

I Bonds and Series EE Savings Bonds are accrual securities. They earn -- accrue -- interest monthly at a variable rate and the interest is compounded semiannually. You receive your earnings when you redeem an I Bond or Series EE Savings Bond.

Series HH Savings Bonds are current income securities. You receive your earnings semiannually and you receive the face value of Series HH Savings Bonds when you redeem them.

General benefits of the I Bond and Series EE Savings Bond

• Attractive interest rates. The I Bond tracks inflation to prevent your earnings from being eroded by a rising cost of living. The Series EE Savings Bond earns market-based rates, keyed to five-year Treasury securities. Both series offer rates that are comparable to the rates of similar savings tools.
  
  
• Tax advantages. Savings bond earnings are exempt from all state and local income taxes. You can defer federal income taxes on earnings until the savings bonds either reach final maturity or until you redeem them. If you use savings bonds to pay for qualified higher education expenses, your earnings may be exempt from federal income taxes, too.
  
  
• Safety. Savings bonds are backed by the full faith and credit of the United States. Your principal and earned interest are safe and cannot be lost because of changes in the market. Savings bonds are registered with the Treasury Department, so if yours are lost, stolen or destroyed, you may have them replaced at no cost to you.
  
  
• Affordability. You can buy savings bonds for as little as $25. Participants in the Payroll Savings Plan may buy them in even smaller installments. The Treasury Department never charges fees or service charges when you buy or redeem savings bonds. Because savings bonds come in eight denominations -- $50, $75, $100, $200, $500, $1,000, $5,000 and $10,000 -- you can tailor your purchases to meet your goals and needs.
  
  
• Accessibility. After an initial holding period of 12 months for bonds issued February 2003 or later, the money you place in savings bonds is available whenever you want it. Bonds issued earlier may be cashed after six months. However, if you redeem a savings bond earlier than five years from the issue date, you pay an early redemption penalty equal to the last three months of earned interest.
  
  
• Convenience. You can buy savings bonds in several ways. The easiest is through the Payroll Savings Plan with an automatic allotment. If you do not have access to payroll savings, the EasySaver Plan offers similar convenience by allowing automatic purchases with allotments from your checking or savings account. You can also buy savings bonds at 40,000 financial institutions nationwide and online with a credit card at Savings Bonds Direct.

Interest accrual and compounding
Interest earned on I Bonds and Series EE Savings Bonds accrues monthly. This means that these savings bonds grow in value each month. The amount of this monthly growth is determined by the current interest rate and total value of a savings bond. Each month's earnings are applied to a savings bond's value on the first day of the next month. For example, interest earned in January is applied on February 1.

Interest accrued by I Bonds and Series EE Savings Bonds is compounded every six months -- on a savings bond's semiannual anniversaries. When interest compounds, the savings bond's value on that date is used to calculate monthly interest accruals for the next six months.

Savings bond semiannual anniversaries are simply the months in which a savings bond is issued and six months from that. For example, a savings bond issued in January will have January and July as its semiannual anniversaries.

Tax exemption, deferral, and reporting
Savings bond earnings are exempt from state and local income taxes.

You may defer payment of federal income taxes until a savings bond reaches final maturity -- 30 years from the issue date -- or until you redeem it, whichever comes first. The Internal Revenue Service requires that you report savings bond earnings for federal income tax purposes no later than the year in which a savings bond reaches final maturity, even if you do not redeem it.

You may also elect to report your savings bonds earnings to the Internal Revenue Service and pay applicable federal income taxes annually.

Restrictions on redemption
You may not redeem a savings bond until 12 months after its issue date for bonds issued February 2003 or later. For example, a savings bond with an issue date in February may be redeemed beginning the following February. Bonds issued earlier may be cashed after six months; a bond issued in January may be redeemed beginning in July. Under extreme conditions, such as a widespread natural disaster, the Treasury Department may waive this holding period to assist people in a crisis.

After the initial holding period, you may redeem your savings bonds at any time. However, if you redeem I Bonds or Series EE Savings Bonds earlier than five years from the issue date, you pay an early redemption penalty equal to the last three months of earned interest.

Maturity periods
I Bonds earn interest until they reach final maturity at 30 years from the issue date. At that time, they stop earning interest and you should redeem them. You must report your earnings for federal income tax purposes in the year in which your I Bonds reach final maturity.

Series EE Savings Bonds will double in value to reach face value no later than 17 years from the issue date. This 17-year point is called original maturity. At that time, if the savings bond has not grown to face value, the Treasury Department makes a one-time adjustment to bring it to face value. The Series EE Savings Bond will then continue to earn interest, growing greater than face value -- depending on market rates--until it reaches final maturity at 30 years from the issue date. At that time, the savings bond stops earning interest and you may choose one of two ways to proceed.

You may redeem your Series EE Savings Bonds and report your earnings for federal income taxes purposes in the year in which they reach final maturity. Alternatively, you may exchange your Series EE Savings Bonds for Series HH Savings Bonds and defer federal income tax reporting for up to an additional 20 years. For more information on this process, see the Series EE Savings Bond section of the savings bonds website.

You may redeem savings bonds before their final maturity dates. See "When you can redeem savings bonds."

The Education Tax Exclusion (Education Savings Bond Program)
Your earnings from I Bonds and Series EE Savings Bonds may be excluded from federal income tax if you pay for qualified higher education expenses in the year in which you redeem the savings bonds. Generally, tuition and fees at an educational institution or program that receives federal tuition assistance qualify. Your household income in the year of redemption must meet guidelines for you to use the exclusion. Other restrictions apply.

For more information on income guidelines and other requirements, see "Savings Bonds for Education" and the "FAQs - Education and Savings Bonds." (FAQs are frequently asked questions.)

For more information visit: www.savingsbonds.gov

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