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.
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Similarities
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.
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.
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.
Frequently asked questions
It depends on your needs and goals. Both are designed for long-term investment.
Bonds may be best if you’re less certain about when you’ll need access to your money. If you know exactly when you’ll need the cash, choose the one that offers the most interest.
Yes. You or loved ones can purchase electronic or paper bonds on behalf of your child or someone else you know.
Yes, you must pay taxes on any interest earned from savings accounts and savings bonds. With savings bonds, there is one exception: if you use the interest to pay for qualifying educational expenses.
Kelly Suzan Waggoner is a Personal Finance Editor at AOL and the former US editor-in-chief at Finder, where she worked with a talented team of expert writers and editors focused on helping readers to save money, earn money and grow their wealth. She joined Finder in 2016 as an editor, germinating the site from money transfers to include the wide scope of personal finance.
Kelly has worked with publishers, magazines and nonprofits throughout New York City to develop best practices around editorial, SEO, plain language and accessibility, including Black Dog & Leventhal Publishers, HauteLife Press and Queerty. She is quoted on such sites as Lifehacker and CertifiKid, and ghostwrote Copyediting and Proofreading for Dummies, published by Wiley.
Kelly earned a BA in English from Russell Sage College and a Poynter ACES Certificate in Editing from Poynter News University. She is trained in digital and website accessibility and plain language, and is a member of ACES: The Society for Editing and the Center for Plain Language. Between projects, she toys with words, flips through style guides and fantasizes about the serial comma’s world domination. See full bio
Kelly Suzan's expertise
Kelly Suzan has written 40 Finder guides across topics including:
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