Bonds are issued by the US Treasury Department (you can also buy bonds from most other governments in the world-depending on the stability of the government, it can make a great way to diversify your portfolio). They are backed "in full faith" by the Federal government, meaning that, no matter what happens, even if the FDIC (Federal Deposit Insurance Corporation) collapses and your regular deposits over $100,000 fail, you will still be eligible to redeem your savings bonds from the government.
The reason that they are issued by the Treasury Department is that they are used to finance government debt, meaning that you lend the government money at a specified interest rate and in return they keep and use your money to a certain time period. Withdrawing a bond earlier than its call period usually results in penalties and the loss of some of the value of the bond.
Their interest rate payments are compounded, meaning that the percentage is added to the value of the bond as opposed to compounded on the interest itself. They are also tax-deferred, meaning that you don't have to pay taxes on the value of the bond until you cash it in, making it a pretty good investment. You can redeem them after a year, at anytime.
There are currently two series of savings bonds: I savings bonds and EE savings bonds. You can buy I bonds at face value, at any denomination you wish, up to $5,000 per calendar year. Usually this is done at your local bank branch. A new service, TreasuryDirect, has arisen so that you can now buy them online.They are registered in your name or the name of the individual you are buying it for. The interest rate is usually fixed and depends on a variety of factors, and you can keep these bonds for up to 30 years. The current interest rate is 4.28%
EE bonds pay interest rates based on current market rates, also up to 30 years. The current rate is 3.00%, but this is in constant fluctuation. You can buy these for a minimum of $50 (costing $25 to buy and then accruing to the full value over at least 5 years), and going up to $10,000. They are definitely more complicated than I series savings bonds, and are much better for longer-term investing because their ownership minimum time period is at least 1 year.
To compare more about different types of bonds and securities in general, visit I and EE Savings Bond Comparison.
