Savings accounts vs. savings bonds: Which is better? |
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Savings accounts vs. savings bonds: What to know

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Use both of these financial tools to reach your savings goals.

Savings accounts and savings bonds are built for the same purpose — and it’s right in their names. Both allow you to save money, albeit not at the strongest rates. But you’ll find distinct differences between these two financial tools.

Savings accounts vs. savings bonds: What sets them apart?

Many banks offer accounts that can help you save money with few fees and easy access. But they don’t come with the nearly 80-year history of a US savings bond.

Still, their differences go beyond nostalgia to include how much you’re able to save, whether you’ll pay taxes on what you earn and more.

Savings accounts

  • Variable rates range from 0.01% to as high as 5%.
  • Some accounts require no minimum balance.
  • Deposit as much as you want.
  • Withdraw money any time.
  • Interest is fully taxable.

Savings bonds

  • Fixed interest rate of 0.10% over the life of your bond.
  • $25 minimum to buy a bond.
  • $10,000 annual purchase limit.
  • Must hold the bond at least one year before redeeming.
  • Interest is tax-free if redeemed toward educational expenses.

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Savings accounts and savings bonds are similar when it comes to:

  • Safety. Both are backed by the US government, so you can’t lose money by buying a bond or depositing money into a savings account.
  • Predictable returns. You can calculate the interest you’ll earn on your deposit.
  • Medium-term savings. Both accounts are best for those who aren’t looking for access to their money in the next 12 or more months, though savings accounts provide a bit more flexibility for early withdrawals.

Types of US savings bonds

The two main types of savings bonds are EE Bonds and I Bonds. Both are solid ways to save money, but with important differences.

EE Bonds

  • Only available online.
  • Interest rate set when you buy the bond.
  • Available in amounts of $25 or more.

I Bonds

  • Available in paper or online.
  • Interest rate is a composite fixed amount plus an inflation adjustment.
  • Purchase paper bonds in $50 increments and online bonds in amounts of $25 or more.

Old savings bonds

Savings bonds have been around for a long time. The first savings bonds were sold after President Franklin D. Roosevelt signed legislation creating them in 1935. Ever since, they’ve been a popular way to save money for the future.
Savings bonds have undergone many changes in that time. Even the modern EE bond, the type that most Americans are familiar with, has changed over the years.

Prior to 1995, EE bonds earned a fixed rate of interest with a guarantee to double in value after a specific period of time. For example, a bond purchased for $25 in April 1995 earned 4% per year with a guaranteed value of $50 in April 2013.

Even after the value of the bond doubled, it continued to earn interest 30 years after the bond was issued.

If you have old savings bonds, they could be worth more than you think. The Department of Treasury’s savings bond calculator can help you find out how much your old bonds are worth.

How to buy or cash in

Everyday savings accounts offer an easy way to earn interest on your money with flexible deposits and withdrawals, while savings bonds lock up your money for a year before allowing you to withdraw your money.

Savings accounts

You can make deposits to your savings account online through mobile check deposits or transfers. Withdraw your money at a branch, an ATM or by transferring it into another account electronically.

Savings bonds

The easy way to buy a savings bond is online through the Department of Treasury’s site. With an electronic bond, you never have to handle physical bonds or worry about storing them. You can purchase either I bonds or EE bonds in any amount of at least $25.

To redeem an electronic bond, log in to the Department of Treasury’s site and select the bonds you want to redeem. You can then send the money to your bank electronically.

For paper bonds, you’re limited to I bonds only, and you can only purchase them using your tax refund. You can buy up to $5,000 in paper I bonds each year in increments of:

  • $50
  • $100
  • $200
  • $500
  • $1,000

Redeeming a paper bond involves converting it to an electronic bond and redeeming it online. You can also redeem it by visiting a local bank or mailing it to the Treasury.

Bottom line

Savings accounts and savings bonds share features, but they’re designed for slightly different goals.
Your everyday savings account offers a place to keep money that you might need quickly for, say a financial emergency. While savings bonds are better suited for a long-term investment of money you won’t need until later.

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