What Are U.S. Savings Bonds? Definition, How They Work, Types, and Taxes | Government Savings Bonds

Описание: U.S. Savings Bonds: Definition, How They Work, Types, and Taxes

KEY TAKEAWAYS
U.S. savings bonds are a form of government debt issued to American citizens to help fund federal expenditures.

Savings bonds are sold at a discount and mature to their full face value, and do not pay regular coupon interest.

Series EE bonds are sold at half of face value and mature in 20 years. Series I bonds are adjusted for inflation.

History of the U.S. Savings Bond
In 1935, during the Great Depression, President Franklin D. Roosevelt signed legislation that allowed the U.S. Department of the Treasury to issue federally backed savings bonds, Series A. In 1941, the Series E bond was first issued to help finance World War II and were called Defensive Bonds.

Types of U.S. Savings Bonds
There are presently two types of U.S. savings bonds that can be purchased electronically are the Series EE and Series I bonds.

Series EE U.S. Savings Bond: The Series EE savings bond replaced the Series E bond in 1980. These bonds are sold at face value and are worth their full value upon redemption. These bonds offer a fixed rate of interest, which is paid at maturity or redemption.
Series I U.S. Savings Bond: The Series I savings bond was introduced in 1998. Like the Series EE bond, the Series I is sold at face value. These bonds offer a rate of interest adjusted for inflation, making the interest rate somewhat variable. If inflation increases, the interest rate on the savings bond will be adjusted upward. During periods of deflation, the bonds are guaranteed never to drop below 0.00%.
Series HH bonds are no longer available for purchase. The U.S. government discontinued these bonds as of Aug. 31, 2004. Bonds that didn't mature continued to receive interest payments. The Series HH bond were 20-year, non-marketable savings bond issued by the U.S. government.

Other Considerations
In order to purchase or redeem a U.S. savings bond, an investor must be a U.S. citizen, official U.S. resident, or U.S. government employee (regardless of citizenship status).

U.S. savings bonds are among the safest types of investments, as they are endorsed by the federal government and are, therefore, risk-free. Although these bonds do not earn much interest compared to the stock market, they do offer a less volatile source of income. They offer a way to save for future expenditures, as they cannot be cashed until at least 12 months after purchase, and the longer you wait to cash the bond, the more interest it accrues.