Series I Savings Bonds are the best overall because their earnings adjust with inflation, come in both paper and electronic forms, and may avoid Federal taxation when used to pay for education.
Series I Savings Bonds are our choice for the best U.S. savings bonds because they offer a higher return that adjusts with inflation, can be delivered electronically or in paper form, and may avoid Federal taxation when used to pay for higher education. Series I Savings Bonds are also the best choice for education savings because of the tax break when paying for college and inflation adjustment.
Bondholders will continue to earn interest for up to 30 years or until the bond is cashed in, whichever comes first. The current rate is 6.89% for bonds issued between November 2022 and April 2023. Interest rates are a combination of a fixed rate plus a semi-annual inflation rate that adjusts every six months.
These bonds can be purchased for as little as $25, with a maximum of up to $10,000 per calendar year per Social Security Number. Electronic bonds have a minimum purchase of $25 and a maximum of $10,000 with denominations of any amount in between in penny increments. Paper bonds start at $50 each, come in denominations of $50, $100, $200, $500, and $1,000, and have a maximum purchase amount of $5,000 per year. Electronic savings bonds can be purchased at any time through Treasury Direct, while paper bonds are only available with your IRS tax refund.
Series I Savings Bonds must be held for at least one year before they can be redeemed. These bonds are known as zero-coupon bonds, which means that they do not receive regular interest payments. The interest accrues and is paid out when the bond is cashed. If you redeem them during the first five years, you’ll forfeit the interest earned from the previous three months. After five years, there is no penalty.
Interest earned is taxable at the Federal level, however, it may be excluded when used to pay for education. Savings bonds are exempt from state and local income taxes but you may owe estate or inheritance taxes, depending on your personal circumstances.