Why you should dump your savings accounts for savings bonds

savings accounts vs savings bondsA number of factors have to come together to make replacing your online savings account with a TreasuryDirect account, not only a good financial decision, but a practical one.  TreasuryDirect is the online service that enables American to buy savings bonds online.
  To see a list of high yielding CDs go here.  

Financial Issues

I Bonds pay an interest rate which fluctuates with inflation. If inflation averages 2.2% over the next few years, the I bond will provide a rate of return that is double high yielding savings accounts. Off course, if inflation hits 4 or 5 % like some predict, the return on the savings bonds could be 4 or 5 times a savings account.

EE Bonds currently pay more interest than a typical savings account, but not high-yield savings accounts. However, the yields on high yielding savings accounts tend to drop dramatically after the first year you have the account, making EE Bonds more attractive over the long term.


Practical Issues

  • Funds can be retrieved from a TreasuryDirect account in one business day.
  • Any savings bond that are more than one year old can be cashed in.

Lets deal with the practical issues of using savings bonds instead of a savings account. The purpose of a savings account is to provide immediate access to cash as needed, but not for frequent transactions. Using TreasuryDirect, you can redeem bonds (EE or I saving bonds) online and receive cash in your bank account in one business day.


Rules For Redeeming Saving Bonds

You cannot redeem savings bonds that are less than a year old. This is the major drawback to parking your cash in savings bonds. If this is an issue, we suggest putting in regular small amounts to build up the amount of “redeemable” funds.

Bonds that are less than five years old have an early redemption penalty of 3 months interest. However, the difference in returns for I bonds should more than make up the difference.


Choosing Bonds And Partial Redemptions

With Treasury Direct, you can select individual bonds for redemption.  You can also choose to redeem a portion of a bond,  provided that you redeem more than $25 worth, and the remaining value of the bond is more than $25.00.  These choices are useful in two ways:

  1. You can choose to redeem your savings bonds which are paying the lowest interest rates.
  2. You can choose to redeem bonds over 5 years old, and avoid paying a penalty for redemption.

The Choice Is Clear: TreasuryDirect Beats Saving Accounts

Buying savings bonds through Treasury Direct gives you the convenience of having quick access to cash, but pays a better rate of return. While I Bonds are better investment products, there is a $10,000 per year purchase limit. This may lead you to buy both I Bonds and EE bonds.

Learn More:

5 Best US Savings Bond Websites
How To Earn 3.5% Interest On US Savings Bonds!
3 Tips For Buying US Saving Bonds & Earning Extra Interest
4 Solid Benifits of using savings bonds for retirement


  1. Ginger says

    I have to disagree with you on dumping savings accounts for bonds. My high yield checking earns 2.4% which is better than what I bonds are earning right now at 1.76%. E bonds should never be considered in my opinion, when you can open any high yield account and get at least .75%. Yes, once the government increases the fixed rate from 0, i bonds will be a good idea again, but for now, no way.

    • David Waring says

      Hi Ginger,

      Thanks for the comment. The problem we have with the high yield accounts is that most of them drop the interest rate after you open the account. But if you are legitimately getting 2.4% on a high yield checking account thats great.


      • Ginger says

        None of my accounts have dropped after opening them, high yield checking or savings. Yes, when I started ING Direct it was much higher and has dropped but that was because most online savings accounts were earning 4-5% then and now they are earning about 1%, but so have i bonds and every other account because inflation is lower now, than 5-6 years ago. I am not sure why you think high yield accounts drop after opening, it has not been my experience.

  2. David Waring says

    Hi Ginger,

    Do you mind if I ask where you are getting 2.4%? I show ING accounts currently yielding .75% for savings and .84% for checking.


  3. TheRealFed says

    EE bonds sold currently guaranteed by Treasury to at least double in value in 20 years; this is a 3.6 % annual return( if held for the 20 years ). About what a balanced portfolio of stocks/bonds will do over the next 20 years! No fees, no middlemen, no leeches. Buy them every year, each month to ladder them for future income needs. Do the same with the I bonds. Backed by Treasury; you manage your own money for free. Low rates are the norm for years to come. Sorry.

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