What Happens When You Buy a U.S. Savings Bond

You are lending money to the U.S. Treasury for a fixed term (up to 30 years). In return, you receive guaranteed interest.

Process

1. Purchase: Electronic (TreasuryDirect.gov) or paper (via tax refund). Minimum $25.
2. Interest Accrual: Fixed rate set at purchase; compounds semiannually.
3. Payments: Interest added to bond value every 6 months (not mailed separately).
4. Maturity: At term end (e.g., 20 or 30 years), bond reaches face value + all accrued interest. Can redeem anytime after 1 year (penalty if <5 years: lose last 3 months' interest).

Example

$500 Series EE bond at 4.17% for 20 years:

• Semiannual interest: $500 × (4.17%/2) = $10.43
• 40 periods × $10.43 = $417 total interest
• Maturity value: $500 + $417 = $917

Key Features

• Backed by full faith & credit of U.S. → virtually risk-free.
• Tax-deferred (federal only); state/local tax exempt.
• EE bonds guaranteed to double in 20 years (effective ~3.5% if held).