How to Buy Savings Bonds Directly From the Treasury

U.S. savings bonds are debt securities issued directly by the U.S. Department of the Treasury. They serve as a low-risk investment opportunity for individuals. When you purchase a savings bond, you are lending money to the federal government, which uses these funds to finance its operations and programs. Savings bonds have a long history as a popular savings vehicle. The primary method for acquiring these bonds is through the TreasuryDirect online system.

Types of Savings Bonds

The U.S. Treasury currently offers two main types of savings bonds for purchase: Series EE and Series I bonds. Both are designed to provide a secure return on investment, backed by the full faith and credit of the U.S. government. They differ in how interest is calculated and their primary investment appeal.

Series EE bonds accrue interest at a fixed rate, established at the time of purchase, which remains constant for the bond’s initial 20-year term. Interest on these bonds is compounded semi-annually. The Treasury guarantees that Series EE bonds purchased today will at least double in value over their 20-year holding period.

Series I bonds offer protection against inflation through a composite interest rate. This rate combines a fixed rate, which stays the same for the life of the bond, with a variable inflation rate that adjusts every six months. The inflation component is tied to the Consumer Price Index for all Urban Consumers (CPI-U). Interest for Series I bonds also compounds semi-annually, with the rate updating on May 1st and November 1st each year. Both Series EE and Series I bonds are now issued exclusively in electronic form through the TreasuryDirect platform.

Preparing for Your Purchase

Acquiring savings bonds directly from the Treasury requires setting up an online account with TreasuryDirect. This account serves as your interface for purchasing, managing, and redeeming securities. Before your first purchase, you will need to gather specific personal and financial information.

To open a TreasuryDirect account, you will need your Social Security Number (SSN) or a valid Employer Identification Number (EIN) if purchasing for an entity. A current U.S. mailing address and a valid email address are also necessary.

A U.S. bank account with its routing number is also a requirement. This linked bank account will be used to fund your bond purchases and to receive funds when you redeem your savings bonds.

Eligibility for opening a TreasuryDirect account and purchasing savings bonds extends to U.S. citizens, residents, and certain entities like trusts and corporations. Each individual can purchase up to $10,000 in Series EE bonds and $10,000 in Series I bonds within a single calendar year. These annual purchase limits apply per Social Security Number or Employer Identification Number.

The Purchase Process

Once your TreasuryDirect account is established and linked, purchasing savings bonds is a straightforward online process. Begin by logging into your existing TreasuryDirect account using your account number and password.

After successfully logging in, navigate to the “BuyDirect” tab within the TreasuryDirect platform. You will then be prompted to select the type of savings bond you wish to acquire, choosing between Series EE or Series I bonds.

Following the bond type selection, you will enter the desired purchase amount. Electronic savings bonds can be purchased in any denomination from $25 up to your annual purchase limit. You will also specify the registration, such as individual, joint owner, or beneficiary. The system will then ask you to select your funding source, which will be the U.S. bank account you previously linked to your TreasuryDirect account.

Before finalizing the transaction, a review screen will display all the details of your purchase, including the bond type, amount, registration, and funding source. Upon confirming the details, you will submit your purchase request. Immediately after submission, you will receive a confirmation email, and the newly purchased bond will appear in your TreasuryDirect account.

Managing Your Savings Bonds

Both Series EE and Series I bonds earn interest monthly, which is compounded semi-annually. This means that every six months, the earned interest is added to the principal value, and future interest calculations are based on this increased amount.

For Series EE bonds, the interest rate is fixed at the time of purchase and remains constant for the first 20 years, with a guarantee to double in value over that period. Series I bonds, however, have a composite rate that adjusts every six months, combining a fixed rate with a variable inflation rate. You can always find the current interest rates for both Series EE and Series I bonds directly on the TreasuryDirect website.

Savings bonds have specific holding periods and redemption rules. You must hold a savings bond for at least 12 months before it can be redeemed. If you redeem a bond before holding it for five years, you will forfeit the last three months of interest earned. For example, if you cash a bond after 18 months, you will receive interest for 15 months. Both Series EE and Series I bonds continue to earn interest for up to 30 years from their issue date, at which point they reach final maturity.

Regarding tax considerations, interest earned on savings bonds is exempt from state and local income taxes. However, it is subject to federal income tax. You have the option to defer reporting the interest for federal tax purposes until the bond is redeemed, reaches final maturity, or changes ownership. Alternatively, you can elect to report the interest annually. A significant benefit exists if the bond proceeds are used for qualified higher education expenses, potentially allowing for exclusion of the interest from federal income tax under specific IRS guidelines, typically reported on Form 8815.