Savings bonds

Definition

Savings bonds are government-issued debt securities that earn interest over a specified period. They are considered low-risk investments and typically used for long-term savings goals.

5 Must Know Facts For Your Next Test

1. Savings bonds are non-marketable, meaning they cannot be bought or sold in the secondary market.
2. Interest on savings bonds is exempt from state and local taxes but subject to federal income tax.
3. There are two main types of U.S. savings bonds: Series EE and Series I.
4. Series EE bonds are guaranteed to double in value after 20 years, while Series I bonds offer an inflation-adjusted return.
5. Savings bonds can be redeemed after one year, but cashing them within the first five years incurs a penalty of three months' interest.

Review Questions

• What are the two main types of U.S. savings bonds?
• How is the interest on savings bonds taxed?
• What happens if you redeem a savings bond within the first five years?

Related terms

Coupon Bonds: Bonds that pay periodic interest payments called coupons until maturity.

Treasury Bonds: Long-term debt securities issued by the U.S. Department of the Treasury with maturities longer than ten years.

Zero-Coupon Bonds: Bonds that do not make periodic interest payments and are sold at a discount from their face value.