An American Tradition—U.S. Savings Bonds

July 4 th is the day we celebrate America's independence. It's also a great time to pay tribute to U.S. savings bonds, which have helped Americans lay the groundwork for financial independence since 1935.

Savings bonds have changed over the years, along with the interest they pay. But they continue to be a low-risk way to save for everything from college to a down payment on a house.

If you're new to savings bonds, or need a refresher course, here are answers to five questions about this uniquely American financial product.

1. Who issues savings bonds? Savings bonds are issued by the federal government and backed by its "full faith and credit" guarantee. Savings bonds may be purchased for an amount as low as $25. The interest earned is subject to federal income tax, but not state and local income taxes.

2. Where can I buy savings bonds? Savings bonds can be purchased electronically from the U.S. Treasury through TreasuryDirect. No physical certificate (paper bond) will exist. TreasuryDirect allows you to buy, track, change registration and redeem your bond—all electronically via a secure online account.

3. What types of savings bonds can I buy? The two most common types of savings bonds are Series EE Bonds and Series I Bonds. Both are accrual securities, meaning the interest you earn accumulates monthly at a variable rate and the interest is compounded semiannually. Savings bonds earn interest for a maximum of 30 years. You receive your interest income when you redeem the bonds. Series EE Savings Bonds issued after May 2005 earn a fixed rate of interest. The I Bond tracks inflation to prevent your earnings from being eroded by a rising cost of living. TreasuryDirect has a helpful chart that compares EE and I bonds. You can purchase up to $10,000 in EE and $10,000 in I bonds through Treasury Direct each calendar year.

4. Can I still buy paper savings bonds? As of January 1, 2012, paper savings bonds are no longer sold at financial institutions and EE bonds are only available electronically. However, it is possible to purchase up to $5,000 a year in Series I paper savings bonds using part or all of your tax refund.

5. How do I determine the value of a savings bond? Use TreasuryDirect's Savings Bond Calculator. The calculator shows a bond's current interest rate, next accrual date, final maturity date and year-to-date interest earned, among other information. The calculator also computes the value of older paper savings bonds that might have been sold at half of their face value.

You have to hold each savings bond for at least one year, and if you sell it before five years, you forfeit interest from the most recent three-month period.

For more information about saving and investing, visit www.finra.org/investors.

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