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United States Savings Bonds – How Do Savings Bonds Work?

The savings bonds issued by the federal government are probably the safest investments ever. After all, you will earn interest and recoup your principal investment no matter the state of the economy. Any US citizen with a social security number and Puerto Rican residents can invest in these bonds.


But first, a definition is in order. As previously said, savings bonds are debt securities issued by the US Department of the Treasury with the purpose of funding the federal government’s borrowing needs. Savings bonds come in several types:

  • Series EE bonds will increase in value as long as the interest accrues on them for 30 years. When these securities become due and demandable, you will be paid the accrued interest plus the original investment.
  • Series HH bonds are bought at their face value ranging from $500 to $10,000 in denominations with no limit on the amount of purchase. However, these securities do not increase in value and are limited to just 20 years.
  • Series I bonds are also purchased at face value. It can increase in value depending on the inflation rate for the next 30 years. The limit on purchase is set at $5,000 per calendar year.


Of course, the primary benefit of savings bonds is that these securities are truly secure in every sense of the word, finance-wise. Your original investment along with interest accrued will be paid, recession or no recession.

Another benefit is that the interest accrued on these bonds need not be reported to the Internal Revenue Service for taxation purposes until such time that these are cashed by the holder. However, take note that when you use the savings bonds for your education as well as the education of your spouse and child, you have to report it to the federal government.

Overall, savings bonds are great investments especially when you want to diversify your portfolio.

Calculate Worth

At some point, you will want to know the value of your savings bond especially when you want to cash it in. You have two choices in the matter – the manual way and the automated method.

If you choose to go the route of the manual method – because you are a math pro in that way – you start by jotting down the face value of the these bonds and the interest rate affixed to them. Then, you will determine the specific period of time when you want to redeem the bonds.

Now, multiply the interest rate with the face value with the time for encashment as the only consideration to arrive at the accrued interest. Add the accrued interest to the face value of the bonds and deduct the penalties and voila! You have the value of your stocks.