{"id":40055,"date":"2024-07-11T15:18:44","date_gmt":"2024-07-11T11:18:44","guid":{"rendered":"https:\/\/www.miamiherald.com\/banks\/?p=40055"},"modified":"2024-10-07T21:05:40","modified_gmt":"2024-10-07T17:05:40","slug":"savings-bonds","status":"publish","type":"post","link":"https:\/\/www.miamiherald.com\/banks\/banking\/savings-bonds\/","title":{"rendered":"How Do Savings Bonds Work?"},"content":{"rendered":"

A savings bond could be ideal if you want a low-risk way to grow your money<\/a>. When you purchase this investment vehicle, you\u2019re essentially lending money to the government in exchange for interest. Keep reading to learn more about how savings works, the key advantages and disadvantages they offer, and how to move forward with a purchase. <\/p>

What are Savings Bonds?<\/h2>

Savings bonds are a type of debt security issued by the federal government. When you buy one, you essentially lend the government money and receive interest in return. <\/p>

What are the Types of Savings Bonds in the U.S.?<\/h2>

There are two main types of savings bonds: Series EE and Series I.<\/p>

Series EE Savings Bonds<\/h3>

Series EE savings bonds are issued at face value and earn a fixed rate of interest. They are designed to double value by maturity, which is 30 years, but you can redeem them after 20 years at their full value. And if you cash them in before five years, you forfeit the prior three months of interest earnings. <\/p>

The current rate set by the U.S. Department of the Treasury is 2.70% for bonds issued between May 1, 2024 and Oct. 31, 2024. <\/p>

Series I Savings Bonds<\/h3>

Series I savings bonds are also sold at face value but come with both a fixed rate and a variable rate that adjusts for inflation every six months. These bonds also mature in 30 years but must be held for at least one year before you can cash it in. Like Series EE savings bonds, you lose three months of interest if you cash them in between years one and five. <\/p>

Comparison between Series EE and Series I<\/h3>
<\/td>Series EE Savings Bonds<\/strong><\/td>Series I Savings Bonds <\/strong><\/td><\/tr>
Interest <\/td>Fixed <\/td>Fixed + Variable (adjusting semi-annually for inflation)<\/td><\/tr>
Minimum purchase amount<\/td>$25<\/td>$25<\/td><\/tr>
Annual purchase limit <\/td>$10,000<\/td>$10,000<\/td><\/tr>
Early redemption penalty <\/td>3 months interest loss if cashed before 5 years<\/td>3 months interest loss if cashed before 5 years<\/td><\/tr>
Purchase options <\/td>Electronic <\/td>Electronic and paper (with tax refund)<\/td><\/tr><\/tbody><\/table><\/figure>

How Savings Bonds Earn Interest <\/h2>

Interest for both Series EE and Series I bonds is calculated monthly.<\/p>

For Series EE bonds, interest is compounded semi-annually. This means the interest you earn is added to your bond\u2019s principal value, and future interest is calculated on this new amount.<\/p>

For Series I bonds, the semiannual inflation rate adjustment means your bond\u2019s interest rate can change twice a year. This keeps your savings in line with inflation rates, protecting your investment\u2019s value.<\/p>

Advantages and Disadvantages of Savings Bonds<\/h2>

Advantages<\/h3>