Savings bond is a kind of bond issued by the United States government. Through the sale of savings bonds, the federal government borrows billions of dollars in small amounts from many individuals. The person who buys a savings bond agrees to lend money to the government for a certain length of time. The government agrees to pay interest on the money it borrows.
Most savings bonds issued today are Series EE bonds, which earn interest for 30 years. The interest rate is set when the bond is issued and can change after 20 years. The interest rate is based on the interest rates earned on certain other federal securities. All EE bonds are now sold electronically. Older bonds were printed on paper. EE savings bonds have a face value of $25 to $10,000, and can be sold in any denomination, including penny increments. However, individuals are limited to total bond purchases of $10,000 in a calendar year. The face value of current EE bonds is the value of the bond at the time of purchase. Printed EE bonds were sold at half the value printed on the front of the bond. Interest earned is added to the bond’s present cash-in value. The government guarantees that the cash-in value of a current EE bond will be at least double its face value by 20 years after the bond’s purchase.
Another type of savings bond is the Series I bond, which can be held for up to 30 years. I bonds are issued both electronically and on paper and have a face value ranging from $25 to $10,000, depending on the type. Each bond pays a fixed rate of interest plus a rate based on the rate of inflation. Thus, the bond’s total interest rate always exceeds the inflation rate. The government also guarantees that the cash value of an I bond will never fall below its face value.
From 1980 to 2004, the government issued the Series HH bond. HH bonds were paper bonds offered in exchange for EE and older series bonds. An HH bond paid interest for 20 years. Its holder received an interest payment every six months. The interest rate was set when the bond was issued and could change after 10 years. HH bonds had a face value from $500 to $10,000. The cash-in value of an HH bond always equaled its face value.
EE and I bonds can be cashed one year after they are acquired. HH bonds could be cashed after six months. No U.S. savings bond is subject to state or local income taxes.
The U.S. government first issued savings bonds in 1935. Today, the Bureau of the Fiscal Service, an agency of the Department of the Treasury, runs the savings bond program.
See also National debt.
