Savings Bond Growth Calculator
Estimate the future value of your savings bond based on accrual periods and yield rates.
How Savings Bond Values are Determined
Savings bonds, such as the Series EE or Series I bonds issued by the U.S. Treasury, function differently than standard savings accounts. They are non-marketable securities that accrue interest over a fixed period, typically up to 30 years. The value of your bond depends on several factors, including the purchase price, the fixed or variable yield rate, and the length of time you hold the bond.
Key Terms to Understand
- Face Value: For paper Series EE bonds, this is twice the purchase price. For electronic bonds, the face value is the same as the purchase price.
- Accrual Period: The frequency at which interest is added to the bond's principal. Most U.S. savings bonds use semiannual compounding.
- Yield Rate: The annual percentage of growth. Series I bonds have a "composite rate" which combines a fixed rate and an inflation-adjusted rate.
- Maturity: The date at which the bond stops earning interest.
Example Calculation
If you purchase a bond for $1,000 with an annual yield of 4% that compounds semiannually, how much will it be worth in 10 years?
- Principal (P): $1,000
- Rate (r): 0.04
- Compounding Periods per year (n): 2
- Time (t): 10 years
Using the compound interest formula: A = P(1 + r/n)^(nt)
A = 1000(1 + 0.04/2)^(2 * 10) = 1000(1.02)^20 ≈ $1,485.95
Taxation and Penalties
While savings bonds are exempt from state and local taxes, the interest earned is subject to federal income tax. Additionally, if you cash in a bond before 5 years, you typically forfeit the last three months of interest as a penalty. Always consult with a financial advisor for specific tax implications regarding your bond portfolio.