Savings bonds are a low-risk, tax-deferred way to save money. Series EE savings bonds double in value if held for 20 years and fully mature in 30 years. They increase tax-free in value over time, with taxes due at maturity, when they stop earning interest. People buy savings bonds for a variety of reasons, including saving for college, to give as gifts and to plan for retirement. Patriot Bonds were discontinued as of Jan. 1, 2012, and are no longer available for purchase, but existing Patriot Bonds will continue to accrue interest and mature until 2042.
Types of Savings Bonds
The benefits of buying savings bonds include earning interest that is exempt from state and local income taxes, and earning interest to use tax-free for qualified post-secondary education expenses. As of 2012, the U.S. Treasury offers two series of savings bonds: EE and I. Series EE savings bonds are offered in any amount starting at $25 with a limit of $10,000. Series EE bonds purchased since 2005 earn a fixed rate of return and interest is added monthly and compounds semi-annually for 30 years. Series I savings bonds are offered in the same amounts and limits, but earn a fixed rate of return and a variable semiannual inflation rate with compound interest for 30 years. Series I bonds have an inflation-protection component that may outperform series EE bonds. Patriot Bonds are series EE savings bonds so-named Dec. 10, 2001, after the Sept. 11, 2001, terrorist attacks on the United States, with the bond money going into a general fund that included fighting terrorism. They are inscribed with the words “Patriot Bond” at the top of the face of the bond.
Until Jan. 1, 2012, paper savings bonds were available from financial institutions and through payroll savings programs at half face value. Since this time, series I savings bonds are available in paper form only through purchase with your Internal Revenue Service tax refund, and only in specific denominations: $50, $75, $100, $200, $500, $1,000 and $5,000. Paper Patriot Bonds are no longer available to purchase from financial institutions or the Treasury, but can be converted to electronic bonds in TreasuryDirect with the SmartExchange program for easier access and management. They can be cashed in any time after one year after purchase, but cashing them before the 30-year maturity forfeits interest, and cashing them during the first five years after purchase will forfeit the last three months’ interest.
Electronic Savings Bonds
The U.S. Treasury ended the paper series EE Patriot Bonds and the paper payroll savings bonds programs and switched to electronic savings bonds to save money, increase protection of personal information and improve accessibility of bond funds for investors. With a TreasuryDirect account, investors can easily purchase bonds, see their accounts, give bonds as gifts and set up automatic purchases of savings bonds through payroll deductions.
Where to Buy and Cash
Series I and Series EE savings bonds in electronic format are available from the U.S. Treasury at TreasuryDirect.com. An account is required to purchase bonds in electronic format. Series I paper bonds may be ordered with your annual IRS income tax filing from your refund. Electronic bonds are accessible through electronic accounts 24/7 for purchase, statement viewing and cashing. Paper Patriot Bonds have not been available to purchase since Dec. 31, 2011, but can be cashed through financial institutions or converted to electronic bonds.
- U.S. Department of the Treasury: Buy Savings Bonds
- TreasuryDirect: The Patriot Savings Bond
- TreasuryDirect: I and EE Savings Bond Comparison
- "Savings Bond Advisor – Fifth Edition"; Tom Adams
Heidi Cardenas specializes in human resources, business and personal finance, small-business advice, home and garden and home improvement. Her professional background includes human resources and business administration, technical writing and corporate communications. She has studied horticulture and business administration, and enjoys guest blogging for publications including Herb Companion Magazine, Natural Home Living Magazine, and Mother Earth Living.